Revaluation of Assets and liabilities in case of dishonoured bill of exchange

When a bill of exchange is dishonoured, it means that the party who is supposed to pay the amount mentioned in the bill has failed to do so. In such a scenario, it is important to make necessary entries in the books of accounts to reflect the dishonour of the bill. Let us understand the revaluation of assets and liabilities in case of a dishonoured bill of exchange.

1. Treatment of the dishonoured bill of exchange:

When a bill of exchange is dishonoured, it becomes a bad debt for the holder of the bill. The holder needs to make an entry in the books of accounts to reflect the dishonour of the bill. The entry will be as follows:

Bad debts A/C Dr. (Debit the bad debts account)
To Bills Receivable A/C (Credit the bills receivable account)

2. Treatment of the discount received on the bill:

When a bill of exchange is discounted with the bank, the bank deducts a certain amount from the face value of the bill as a discount and pays the balance amount to the holder of the bill. In case the bill is dishonoured, the holder needs to reverse the entry made for the discount received on the bill. The entry will be as follows:

Bills Payable A/C Dr. (Debit the bills payable account)
Discount A/C Dr. (Debit the discount account)
To Bank A/C (Credit the bank account)

3. Revaluation of assets and liabilities:

In case the entry for the dishonoured bill of exchange was not made earlier, it will have an impact on the revaluation of assets and liabilities. The amount of the dishonoured bill of exchange needs to be added back to the assets and liabilities in the balance sheet. The entry will be as follows:

Bills Receivable A/C Dr. (Debit the bills receivable account)
To Bad debts A/C (Credit the bad debts account)

The above entry will increase the amount of bills receivable and decrease the amount of bad debts in the balance sheet. This will impact the revaluation of assets and liabilities in the balance sheet.

There is a no entry in revaluation account.