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CA Foundation · Accounting · Bills of Exchange and Promissory Notes

Suresh Agencies discounted a customer's bill of ₹50,000 with its bank for ₹49,000. On the due date the acceptor, Tiwari Ltd., dishonoured the bill, and the bank debited Suresh Agencies' account for ₹50,000 plus ₹500 noting charges. If Suresh Agencies recognises the full amount due from the acceptor, what is the entry on dishonour in Suresh Agencies' books?

Debit Tiwari Ltd. ₹50,500 and credit Bank ₹50,500. The bank recovers the full face value plus noting charges from the drawer, and the drawer shows the whole amount as receivable from the defaulting acceptor. The discount already paid is not reversed.

  1. ATiwari Ltd. A/c Dr. 50,500; To Bank A/c 50,500Correct
  2. BTiwari Ltd. A/c Dr. 50,000; Noting Charges A/c Dr. 500; To Bank A/c 50,500
  3. CTiwari Ltd. A/c Dr. 49,000; Noting Charges A/c Dr. 500; To Bank A/c 49,500
  4. DBills Receivable A/c Dr. 50,500; To Bank A/c 50,500

Explanation

On dishonour of a discounted bill the bank recovers the face value 50,000 plus noting charges 500 = 50,500 from the drawer. The drawer debits the acceptor with the entire 50,500 since noting charges are recoverable from the acceptor, and credits Bank. Discount already charged (₹1,000) is not reversed. Option B treats the recoverable charges as an expense.

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