Dishonour of Bill Journal Entries

Before journal entries of Dishonour of Bill, we need to clear the concept of dishonour of bill as per negotiable instrument act.  Dishonour of Bill means the bill which not paid by acceptor on the due date. It is just like dishonour of check. Simply, acceptor has to pay the money to his creditor. So, he accepted the bill in past but at the time of maturity of bill, he is unable because either he is no money in pocket or he is insolvent.

At the time of dishonour of bill, holder of bill can get his money from endorser or drawer by giving the notice of dishonour of bill.

Notice of Dishonour of Bill of Exchange 

When drawee will not pay to bill holder at maturity, bill holder will go to notary officer which is appointed by court. Notary public officer will present same bill to drawee. If he will not pay, notary office will record this. He will get fees from acceptor which will get later from the pocket of drawee.

Now, I think, you have understood the concept and now it is easy for me to teach the journal entries of Dishonour of bill

When Dishonour of a Bill

In the Books of Bill Holder 

Drawer Account Debit

Bill Receivable Account Credit

Logic :  If this is bill holder, drawer account will debit and if he is drawer, then drawee account will be debit because we have asset and we have to take the money from related party. So, his account will be debited. Now, after dishonour of bill, there is no value of bill and its asset has decreased. So, we will debited


In the Books of Drawee

Bill Payable Account Debit

Drawer Account Credit

Logic : One side bill payable liability has decreased and other side drawer's liability has increased. So, bill payable account debit and drawer account credit


When Holder Note it from Notary Public 



In the Books of Holder 

Drawer Account Debit 

Bank Account ( Fees of Noting by notary public )

Bill holder has paid on the behalf of drawer. So, drawer account will debit

In the Books of Drawee 

Noting Charges Account Debit 

Drawer Account  Credit 

(In end, it will be the liability increase for drawer account. So, drawer account credit and noting charge will be our expense. 

When Bill Holder Gets His money from Drawer 

In the books of bill holder

Bank Account Debit 

Drawer Account Credit

In the Books of Drawee

No Entry

Related Contents 

1. Bill Sent for Collection with Bank Journal Entries 
2. Bill Discounting with Bank Journal Entries
3. Journal Entries for Endorsement of Bill
4. Journal Entries of Bill of Exchange
5. Accounting of Bill of Exchange 

Reference

11th Class Accounting eBook