When B's cheque is returned dishonored, it indicates that the payment was not successful due to insufficient funds or other reasons. This situation requires a journal entry to reflect the transaction in the company's accounting records.

• Identify the Transaction: The first step is to identify the transaction of B's cheque being returned dishonored.
• Debit Accounts Receivable: Debit the Accounts Receivable account to reverse the entry made when the payment was initially recorded.
• Credit Bank Account: Credit the Bank Account to reverse the entry made when the payment was initially recorded.
• Record Bank Charges: If there are any bank charges associated with the returned cheque, create a separate entry to debit Bank Charges and credit Bank Account.
• Adjust Cash Flow: Make necessary adjustments to the cash flow statement to reflect the returned payment.

By following these steps and recording the appropriate journal entries, the company can accurately reflect the returned dishonored cheque in its financial records and maintain accurate accounting records.