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CMA Foundation · Fundamentals of Financial and Cost Accounting · Bills of Exchange

Ramesh Traders accepted a bill for Rs 20,000 drawn by Suresh & Co. On the due date Ramesh could not pay and the bill was dishonoured. Which entry will Suresh & Co. pass in its books on dishonour, assuming the bill was retained till maturity?

On dishonour of a bill held till maturity, the drawer debits the acceptor's personal account and credits Bills Receivable. This cancels the bill asset and revives the debt against the acceptor, so Ramesh Traders is debited and Bills Receivable is credited.

  1. ADebit Ramesh Traders, credit Bills ReceivableCorrect
  2. BDebit Bills Receivable, credit Ramesh Traders
  3. CDebit Bank, credit Bills Receivable
  4. DDebit Ramesh Traders, credit Bills Payable

Explanation

The drawer had debited Bills Receivable when the bill was accepted. On dishonour the claim reverts from the bill to the personal account of the acceptor. So Ramesh Traders is debited and Bills Receivable is credited. The reverse entry would be passed only on receipt of the bill, not on dishonour.

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