DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : Sreenivasa Rao B.
Destination : Lecturer in CCP
Branch : Commercial and Computer Practice
Institute : S.U.V.R&S.R GPW, Ethamukkala
Year/Semester : III
Subject : Accountancy II
Subject Code : CCP 302
Topic : Bills of Exchange
Duration : 50 Mts
Sub Topic : Bills of Exchange – Accounting
treatment in case of a dishonour of
a bill
Teaching Aids : PPTs, ANIMATIONS
CCP302.42 1
Objectives :

On completion of this class, you will be able

to Understand:

 Dishonour of bill – meaning

 Account treatment in case of dishonour of
a bill

CCP302.42 2
Recap :

In the previous class we have discussed

Accounting treatment of
The various methods of dealing with a bill like
 When the bill is retained with the drawer
 When the bill is discounted
 When the bill is endorsed to a third party
 When the bill is sent to Bank for
collection

CCP302.42 3
Dishonour of bill – Meaning :
 If the drawee fails to honour the bill on due
date, it is said to be dishonoured
 A bill of exchange is said to be dishonoured on
two accounts – two types
 One by way of non-acceptance of the bill by the
drawee and the other by non-payment of the
account of the bill when it is presented for
payment on due date by the drawer or holder

CCP302.42 4
 When the bill is dishonoured on the due date, the
holder must give notice to all the parties whose
names appear on the reverse side of the bill and
whom he wants to make liable
 All the expenses relating to the dishonour of a
bill are to be debited to the account of the person
from whom the bill was received. Though the
acceptor is primarily liable on the bill but the
holder can sue any party as he wishes

CCP302.42 5
Noting and Protesting :
Noting:

 When a bill is dishonoured, the holder usually

hands over the bill to “ Notary public”. He is an
official appointed by the Government. He will again
present it to the acceptor for acceptance or
payment and thus obtains a legal evidence of
dishonour
 The Notary public records the particulars of the bill,
the fact that it was presented and the reason given
for non-acceptance or non-payment
 The object of noting is to authenticate or establish
the fact of dishonour of the bill
CCP302.42 6
Protesting :

 When once the noting is effected, the notary

issues a certificate based upon the noting
 such certificate is called a protest and
obtaining the same is known as Protesting
 Noting is sufficient for Inland bills
 Protesting is inevitable for foreign bills

CCP302.42 7
Notary Charges :
The Notary Public charges an amount towards his
fee for his services is known as Noting Charges

Noting Charges: This is to be met by the acceptor

and the last holder of the bill pays it in cash but
charges it to the person from whom he had
received the bill who also does the same in his
turn until the drawer charging it to the acceptor

CCP302.42 8
Accounting Treatment in Case of a
Dishonour Bill.
The entry for dishonour of a bill in the books of a
drawer depends upon the position of the bill where it
lies
When the bill is dishonoured, it may be with any
one of the following parties:
 With the drawer, if the bill is retained by him till
the maturity date
 With the drawer bank, if the bill has been
discounted with the bank
 With the Creditor of the drawer, if he has
endorsed the bill in favour of his creditor
 With the drawers bank, if the bill has been sent to
the bank for collection
CCP302.42 9
Entries in the Books of the Drawer
and Drawee in Case of Dishonour
Under Different Cases:
Case No.1:
When the bill is kept by the drawer with himself till
maturity and the bill is dishonoured.
In the books of drawer:
Drawee’s account Dr xxxx
To Bills receivable account xxxx
(Being the bill dishonoured on the due date)
------------------------------------------------------------------

CCP302.42 10
Entries in the Books of the Drawer
and Drawee in Case of Dishonour
Under Different Cases:

In the books of drawee:

Bills payable account Dr xxxx
To Drawer’s account xxxx
(Being the bill dishonoured on the due date)
------------------------------------------------------------------

CCP302.42 11
Problem :

Babu owes Kalyani Rs.9,000. On 1-11-2007 Kalyani

draws a bill on Babu for 2 months for the amount.
On the due date, the bill is dishonoured and Kalyani
pays
Rs.50 as Noting charges

Pass journal entries in the books of both the parties

CCP302.42 12
 Solution:
Journal of Kalyani :
Date Particulars L.F Dr. Cr.
Amount Amount
Rs.. Rs.

1-11- Bills receivable account 9,000

07 Dr 9,000
To Babu account
(Being acceptance of Babu
received for two months)

4-1-08 Babu account Dr 9,050

To Bills receivable account 9,000
To Cash account 50
(Being the bill dishonoured on the
due date and Noting charges paid)
CCP302.42 13
Journal of Babu :
Date particulars L.F Debit Credit
Rs. Rs.

1-11- Kalyani account Dr 9,000

2007 To Bills payable account 9,000
(Being acceptance given for two
months)
4-1-2008 Bills payable account Dr 9,000
Noting charges account Dr 50
To Kalyani account 9,050
(Being the bill dishonoured on due
date
And noting charges are payable)
--------------------------------------------------
-

Note: Noting charges account is debited in the books of the person,

who will have to bear this expense , usually drawee.
CCP302.42 14
Summary :
 A bill of exchange is said to be dishonoured when
a bill is not realized on due date
 Dishonour of a bill is two types i.e non-acceptance
and non-payment by the drawee when it is
presented
 Noting is nothing but an authentication or
establishment of the fact of dishonour of the
instrument
 Nothing charges are the amount paid to a Notary
Public as a fee for his services
 Accounting treatment in case of dishonour of bill,
when the bill is kept till maturity and the bill is
dishonoured
CCP302.42 15
Quiz :

1. Dishonour of bill means:

 Order to pay
 Payment
 To pay the bill
 Non-payment of the bill on due date

CCP302.42 16
Frequently Asked Questions :

1. What is meant by dishonour of a bill ?

2. Write a short notes on Noting charges.

CCP302.42 17