If the acceptor of bill of exchange will declare that he is insolvent at the time of maturity of bill, then bill will be dishonour and All the journal entries will pass which I have taught in dishonour of bill journal entries. Except this, we app some more journal entries. Because there is no hope of getting money from same drawee, so, All due fund will be bad debts for drawer.
Following are the Main Journal Entries when Acceptor will be Insolvent
In the books of Drawer
1st Journal Entry
Drawee Account Debit
Bill Receivable Account Credit
2nd journal Entry
If there is full loss of drawer's receivable money
Bad Debts Account Debit
Drawee Account Credit
If drawer will receive some money
Bank Account ( 20 % Received of total receivable amount ) Debit
Bad Debt Account ( 80% not received of total receivable amount ) Debit
Drawee Account Credit
In the books of Drawee
1st Journal Entry
Bill Payable Account Debit
Drawer Account Credit
2nd journal Entry
If there is full loss of drawer's receivable money
Drawer Account Debit
Deficiency Account Credit
If drawer will receive some money
Drawer Account Debit
Bank Account ( 20 % Received of total receivable amount ) Credit
Deficiency Account ( 80% not received of total receivable amount ) Credit
( Logic : When court accepted that drawee became insolvent. His reputation will become low in the market. But still, he is human being. So, as human being, he has free from his liability of his creditor. Drawer is his creditor. He has not ability to pay him full. Only 20% he will pay. So, in the books, for decreasing total liability of drawer, we need to debit the drawer account. Credit will be bank account, because we have paid it and our total asset will decrease with this amount and we have no rest asset. So, balance will deficiency account as credit of this journal entry. )
Related Contents
Reference
11th Class Accounting eBook
Following are the Main Journal Entries when Acceptor will be Insolvent
In the books of Drawer
1st Journal Entry
Drawee Account Debit
Bill Receivable Account Credit
2nd journal Entry
If there is full loss of drawer's receivable money
Bad Debts Account Debit
Drawee Account Credit
If drawer will receive some money
Bank Account ( 20 % Received of total receivable amount ) Debit
Bad Debt Account ( 80% not received of total receivable amount ) Debit
Drawee Account Credit
In the books of Drawee
1st Journal Entry
Bill Payable Account Debit
Drawer Account Credit
2nd journal Entry
If there is full loss of drawer's receivable money
Drawer Account Debit
Deficiency Account Credit
If drawer will receive some money
Drawer Account Debit
Bank Account ( 20 % Received of total receivable amount ) Credit
Deficiency Account ( 80% not received of total receivable amount ) Credit
( Logic : When court accepted that drawee became insolvent. His reputation will become low in the market. But still, he is human being. So, as human being, he has free from his liability of his creditor. Drawer is his creditor. He has not ability to pay him full. Only 20% he will pay. So, in the books, for decreasing total liability of drawer, we need to debit the drawer account. Credit will be bank account, because we have paid it and our total asset will decrease with this amount and we have no rest asset. So, balance will deficiency account as credit of this journal entry. )
Related Contents
- Renewal of Bill Journal Entries
- Bill Dishonour Journal Entries
- Bill Sent for Collection with Bank Journal Entries
- Bill Discounting with Bank Journal Entries
- Journal Entries for Endorsement of Bill
- Journal Entries of Bill of Exchange
- Accounting of Bill of Exchange
Reference
11th Class Accounting eBook