**Bills Discounted Dishonoured and Cash Book**

When bills discounted by a company are dishonoured, it means that the party who issued the bill failed to make the payment on the due date. This can happen due to various reasons such as insufficient funds, financial difficulties, or deliberate negligence.

**Explanation:**

1. **Definition of Bills Discounted:** Bills discounted refers to the process where a company sells its bills of exchange to a bank or a financial institution before their maturity date. The company receives the discounted value of the bill from the bank or financial institution, and the bank becomes the holder of the bill.

2. **Recording in the Cash Book:** When bills are discounted, the company receives the cash value of the bill from the bank. This cash is recorded in the cash book as a receipt, increasing the cash balance. The corresponding entry is made in the bills discounted account, reducing the bills discounted balance.

3. **Dishonoured Bills:** When a bill is dishonoured, it means that the party who issued the bill failed to make the payment on the due date. In such a scenario, the company needs to reverse the entries made in the cash book and bills discounted account.

4. **Reasons for Dishonour:** Bills can be dishonoured due to various reasons such as insufficient funds in the issuer's bank account, financial difficulties faced by the issuer, or intentional negligence. The dishonoured bill is returned to the company along with a notice of dishonour from the bank.

5. **Recording Dishonoured Bills:** The dishonour of bills is recorded in the cash book by reversing the previous entries made for the bill discounting. The entry is made as a payment, reducing the cash balance, and a corresponding entry is made in the bills discounted account, increasing the bills discounted balance.

6. **Consequences of Dishonour:** Dishonoured bills can have significant consequences for the company. It indicates a lack of financial stability or trustworthiness on the part of the party who issued the bill. The company may incur losses due to the non-receipt of the expected payment and may need to take legal action to recover the amount.

7. **Impact on Financial Statements:** Dishonoured bills need to be properly accounted for in the financial statements. The company should record the dishonour as an expense or loss in the income statement, reflecting the non-receipt of the expected payment. The accounts receivable balance should also be adjusted to reflect the non-collection of the bill amount.

In conclusion, when bills discounted by a company are dishonoured, it is important to record the dishonour in the cash book by reversing the previous entries made for the bill discounting. This ensures accurate financial reporting and reflects the non-receipt of the expected payment.