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CA Foundation · Accounting · Bills of Exchange and Promissory Notes

When a bill of exchange accepted by a customer is dishonoured on the due date, and the drawer (who still holds the bill) incurs noting charges paid to a notary public, how are these charges treated in the drawer's books if they are to be recovered from the acceptor?

The drawer debits the acceptor's personal account and credits Cash or Bank, because noting charges paid to the notary are recoverable from the acceptor who dishonoured the bill. They are an expense only if the drawer bears them.

  1. ADebited to the acceptor's personal account and credited to Cash/BankCorrect
  2. BDebited to Noting Charges Account as a loss and not recovered from the acceptor
  3. CCredited to the acceptor's account and debited to Bills Receivable Account
  4. DDebited to Bills Receivable Account and credited to Cash/Bank

Explanation

Noting charges are paid by the holder and are recoverable from the acceptor. The drawer therefore debits the acceptor's account (increasing what he owes) and credits cash or bank. Debiting Noting Charges as a loss applies only when they are borne by the drawer and not recovered.

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