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A liability of 7,004 will be created against bills receivable discounted earlier but now dishonored. Journal entry and impact?
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A liability of 7,004 will be created against bills receivable discount...
If a bill of exchange that was previously discounted is dishonored, it means that the borrower has failed to pay the amount due on the bill. This creates a liability for the business that discounted the bill, as it is now responsible for paying the amount due to the lender.
The journal entry to record this liability would be:
Debit: Bills Payable (for the amount of the liability)
Credit: Cash (for the amount that was received when the bill was discounted)
This journal entry will have the following impact on the accounting equation:
Assets = Liabilities + Equity
Cash - Bills Payable = Liabilities + Equity
The asset (cash) will decrease by the amount of the liability (bills payable), and the liability (bills payable) will increase by the same amount. The equity of the business will not be affected by this transaction
This question is part of UPSC exam. View all Commerce courses
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A liability of 7,004 will be created against bills receivable discount...
Journal Entry:
Bank Account Dr 7,004
Bills Receivable Cr 7,004
Impact:
1. Increase in Liability: The creation of a liability of 7,004 against bills receivable discounted earlier but now dishonored will increase the company's liabilities.
2. Decrease in Cash Balance: The debit to the bank account will decrease the company's cash balance by 7,004.
3. Increase in Bad Debts Expense: If the dishonored bills receivable are a result of the debtor's inability to pay, the company may need to recognize bad debts expense. This will reduce the company's net income.
4. Decrease in Accounts Receivable: The bills receivable that were discounted earlier will be removed from the accounts receivable balance, which will decrease the company's assets.
Bank Account Dr 7,004
Bills Receivable Cr 7,004
Impact:
1. Increase in Liability: The creation of a liability of 7,004 against bills receivable discounted earlier but now dishonored will increase the company's liabilities.
2. Decrease in Cash Balance: The debit to the bank account will decrease the company's cash balance by 7,004.
3. Increase in Bad Debts Expense: If the dishonored bills receivable are a result of the debtor's inability to pay, the company may need to recognize bad debts expense. This will reduce the company's net income.
4. Decrease in Accounts Receivable: The bills receivable that were discounted earlier will be removed from the accounts receivable balance, which will decrease the company's assets.
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A liability of 7,004 will be created against bills receivable discounted earlier but now dishonored. Journal entry and impact?
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A liability of 7,004 will be created against bills receivable discounted earlier but now dishonored. Journal entry and impact? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about A liability of 7,004 will be created against bills receivable discounted earlier but now dishonored. Journal entry and impact? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A liability of 7,004 will be created against bills receivable discounted earlier but now dishonored. Journal entry and impact?.
A liability of 7,004 will be created against bills receivable discounted earlier but now dishonored. Journal entry and impact? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about A liability of 7,004 will be created against bills receivable discounted earlier but now dishonored. Journal entry and impact? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A liability of 7,004 will be created against bills receivable discounted earlier but now dishonored. Journal entry and impact?.
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