CA Foundation · Accounting · Bills of Exchange and Promissory Notes
On the dishonour of a bill by the acceptor, which statement about the drawer's accounting is correct?
On dishonour, the drawer debits the acceptor's account and credits Bills Receivable Account. The bill is no longer an asset, and the acceptor again owes the amount as a debtor, so the debt is revived in the books.
- AThe acceptor's account is credited because the bill is cancelled
- BBills Receivable Account is debited with the amount of the bill
- CThe acceptor's account is debited and Bills Receivable Account is creditedCorrect
- DNo entry is needed until the acceptor is declared insolvent
Explanation
Dishonour revives the original debt. The acceptor's account is debited to show he owes again, and Bills Receivable is credited because the bill is no longer a valid asset. The other entries reverse these effects or ignore dishonour.
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