Dishonour of Bill Video Lecture - Commerce

let us now understand this honor of pain
before we discuss the accounting entries
let us understand what are the
implications and what are noting charges
what is dishonor of a bill when the
person who has to make the payment on
the bill the person who has accepted the
bill of exchange that is the acceptor of
bill of exchange for the person who made
the promise er who made the promise the
promise er of the promissory note when
he does not make a payment when he does
not make the payment against the bill he
is unable to make the payment against
the bill then it is called dishonor of
the bail it is called dishonor of a bill
when a bill is dishonoured the bill has
to be cancelled we will discuss the
entries later but let us understand what
are noting charges now when a bill is
presented for payment and payment is not
made it is dishonor of a bill and we
said that a bill or a promissory note a
bill of exchange or a promissory note is
a legal document is a financial
instrument but if
the person is able to state that the
bill was never presented then he has no
liability if X presents the bill to Y
and Y does not honor the bill does not
make the payment X can go to court but
if Y is able to prove that the bill was
never presented or rather X is not able
to prove that the bill was actually
presented it is possible that Y will not
have any liability so whenever there is
dishonor or whenever X suspects that
there couldn't be dishonoured he may
approach a public official called the
notary public so the notary public is a
public official and once the bill is
handed over to the notary public the
notary public will present the bill to
these data if the debtor pays of the
money the notary public will collect the
money and give it to the creditor so X
hands over the bill to the notary public
the notary public will present the bill
to Y if Y makes payment the money will
be handed over to X but if Y is not in a
position to make the payment and
dishonours does not pay the money to the
notary public the notary public will
record this dishonor he will write
across the bill the bill has been
Dishonored and also state the reason for
the dishonor so now the dishonor has
been registered it has been proved that
the bill has been Dishonored for this
the notary public charges a nominal fee
though that fee is called noting charges
now who pays the noting charges whoever
since the bill ends up paying the noting
charges so X has handed over this bill
to the notary public in order to
register the dishonor therefore X will
end up making this payment however X
though X has to make this payment X will
not recognize it as an expense in excess
box X will collect this money from Y it
is not an expense in excess books
because X is not responsible for the
dishonor who is responsible for the
dishonor y is responsible for the
dishonor and the person who is
responsible for dishonor noting charges
will be an expense in the books of the
person who is responsible for dishonor
therefore the Y ends up actually making
the cash payment of the noting charges
to the notary public the expense will be
recorded only in the books off it will
be treated as an expense only in the
books of the person who is responsible
for the dishonor now it is possible that
X had transferred X it is possible that
X has endorsed this bill to Z in that
case it would be Z who would present the
bill for payment it would be Z who would
have to pay cash as noting charges to
the notary public but again it is not
zetz expense who is responsible for the
dishonor y is responsible for the
dishonor and noting charges would be
shown as an expense only in the books of
Y Z will try to recover this money from
X who gave him the bill and X will in
turn try to recover this money from why
from whom Express
having understood this concept of
dishonor and noting charges let us look
at the journal entries
first and foremost on receipt again the
situations are the same one it is held
till maturity to bill is discounted and
three it is endorsed on receipt of a
bill the entry is the same whether it's
case one case two a case three bills
receivable account debit to theta so X
in his books will say bill receivable
account debit to Y because previously
when the goods were sold to Y X would
have passed the entry wise account debit
to sales with the passing with the
receipt of the bill receivable wise
account can be cancelled
settled now let us say this bill was
held till maturity and all maturity and
all maturity
the bill was is honored if the will is
dishonored the entry to be passed is
letter account debit to Bill receivable
the bill has to be cancelled because it
is expired no longer exists and the
debtors account has to be brought back
into our books because money needs to be
collected from the depth-x has to
collect this money from Y therefore it
debits wise account and credits bills
receivable account with the value of the
bill now suppose suppose noting charges
were also incurred suppose X incurred
two hundred rupees as floating charges
this will not be shown as northing
charges to cash in the books of X
because noting charges will not be
treated as an expense in the
of X but what will X to X we'll try to
recover this money from why therefore
the entry that X would pass would be
wise account debit to cash wise account
is debited because this money is to be
recovered from Y with noting charges
therefore in our example if the bill is
dishonored and noting charges are 200
then the entry on dishonor that X would
pass would be wise account debit with
10000 the value of the bill
plus 200 that is ten thousand two
hundred wise account would be debited to
bill receivable value of the bill ten
thousand to cash assuming X paid the
notary public in cash so why is account
debit ten thousand two hundred to bill
receivable ten thousand and two cash two
hundred to cash two hundred because
actual payment was made in cash to the
notary public let us take the second
scenario where we got the bill bill
receivable account debit to data
it was discounted with the bank as we
said before let us take the same example
where bank account begat only nineteen
thousand four hundred discount account
was six hundred and bills receivable was
twenty thousand so twenty thousand was
the value of the bill discounted with
the bank
six hundred went off his discount
charges and X got a credit of 19400 so
bank account debit
19400 discount account six hundred two
bills receivable twenty thousand now
what happens when this bill is
dishonoured on maturity our bankers
excess bankers would have presented the
bill for payment and it would have got
dishonoured
let us say when the bill was Dishonored
20,000 bill was Dishonored
maybe the noting charges were 300 rupees
suppose there are noting charges of 300
the bank will collect this money from
our account the bank will straight away
David exists account so money will move
out of banks account to the extent of
20,000 which was the value of the bill
plus 300 rupees which is the noting
charges so bank account would be
predicted with twenty thousand three
hundred three hundred denoting charges
which the bank has paid to the notary
public and twenty thousand being the
value of the bill debtor account debit
to bank
20300 here we have split the entry
debtor account debit to bank with the
value of the bill 20 little account
debit again to bank with the amount of
noting charges of three hundred please
note that the amount which the bank
would take from X's account is the full
value of the belt twenty thousand the
six hundred discount which was taken by
the bank is nothing but an interest
charge for the three months of credit
that X has enjoyed let us come to the
third case in the third case the bill is
endorsed let us say the X transfers this
bill to Z in that case the entry would
be zegs account debit to bills
receivable let us see in this third case
X had purchased goods from Z purchase
account debit to zet an amount of twenty
thousand instead of paying Z cash X
hands over the bill to Z so the entry
becomes sets account
omit to bills receivable amount of
20,000 now what happens in case of
dishonor Z presents the bill for payment
but why does not honor the bill the bill
gets dishonoured the dishonor is
registered with a notary public the
notary public charges 300 rupees Z it is
Z ends up paying the 300 rupees is
noting charges but Z it will not record
it as cents expense Z will recover this
money from why sorry said will recover
this money from X because X had given
him the pen X in its turn will try to
recover this money from Y so what would
be the entry on dishonor in X will have
to reinstate Y as a data so wise account
debit bring back Y as data bring back z
as creditor so Y is account debit to Z
but the amount now would be twenty
thousand three hundred twenty thousand
the value of the bill and three hundred
the noting charges debtor account debit
to creditor with the value of the bill
and again debtor account debit to
creditor with the amount of floating
charges three hundred this would be the
accounting entries in case of design so
neither X nor set record the noting
charges as an expense in their books the
person who makes the payment credits
cash since actually cash has gone but
they will try to recover it from the
person from whom the bill was receipt
therefore Z tries to recover it from X
and X tries to recover the noting
charges from while noting charges would
be shown as an expense only in the books
by which we shall come to yet let us
consider this example it is the same
example as before only there is a
dishonor round sells goods to Shyam
for rupees 10,000 rom draws a bill of
exchange for 10000 duly accepted by Shah
past journal entries in the books of ROM
assuming the bill is dishonoured noting
charges of 50 were incurred a option but
if the bill is healthy maturity bill is
discounted with the bank at the rate of
2% and the bill is endorsed to cash so
the problem is exactly the same only
there is dishonor
so this is in the books or from journal
entries in the book soft rough the first
entry for sale of goods would be shams
account debit to sales an amount of
10000 next a bill is drawn by ROM it is
accepted by sham therefore it is a bill
receivable in the books of ROM bills
receivable account debit to share with
these schaum's account this closed now
the cave option these two entries would
be common to option a B and C if the
bill is health till maturity so if the
bill is held till maturity and then it
is dishonoured so what happens ROM
presents the bill for payment Shawn does
not pay and ROM ends up paying rupees 50
as noting charges so what would be the
entry first and foremost shawn has to be
reinstated as a data we need to recover
not only 10000 we need to recover ten
thousand and fifty rupees from shall
therefore entry would be
Schama count debit sham is now a debtor
for ten thousand and fifty tow the value
of the bill was only ten thousand that
bid is now cancelled so bill receivable
account was debited before now it's
credited and this account is closed toe
cash is the amount of cash that was paid
as note in charges
so with this L tree the dishonor has
been recorded Shaun's account debit so
now sham has come back as a debtor in
the books of ROM but the amount is
slightly more it includes ten thousand
as well as fifty rupees of noting
charges what happens in case of option B
in case of option B again the first two
entries are the same Shama counter sales
and bills receivable account to share
with the amount of ten thousand four
sales being made and a bill being
received against the juice then the bill
is discounted with the bank for two
percent as discussed before 9800 was
therefore received so what is the entry
for that when we discount the bill on
discounting of the bility entry as was
discussed before would be bank account
debit 9800 discount is an expense
discount account debit
202 bill receivable 10,000 so now the
bill receivable account has been closed
we don't have a bill receivable account
in roms books but what happens on
maturity the bank presents the bill to
Xiao Chun dishonours the bill and say
the bank incurs fifty rupees as noting
charges the bank will take it out of
roms bank account so Suarez rom is
concerned ten thousand and fifty rupees
will move out of his pan
cacao so what would be the entry his
bank would be credited for 10050 and
Shawn would be responsible for this
10050 entry would therefore be sharm
account debit data reinstated for 10050
to bank
10050 this is the entry odd dishonor of
the bearer as a result there is no bill
receivable since it was cancelled when
it was discounted
Shawn's account has come back for an
amount of ten thousand plus 50 rupees of
noting charges in case of option C in
case of option C again the first two
entries are the same but when the bill
is endorsed to garnish on endorsement
this is on endorsement entry is Ganesh
account debit to Bill's receivable an
amount of ten thousand on this honour it
is Ganesha presents the bill bill is
dishonored and Ganesh ends up paying
fifty rupees as noting charges but
Galatia will try to recover this Ganesh
will collect this money from Rob because
it was from ROM the Ganesh got the bill
so what would be the entry now wrong has
to pay Ganesh ten thousand plus fifty
rupees
noting charges rom will try to get this
ten thousand plus fifty rupees from Asia
therefore the entry would be to
reinstate the data bring the data back
into the books bring the creditor back
into the books entry would be Shyam
account debit how much does sharp or am
not ten thousand plus 50 how much does
romm oggela sh ten thousand
Plus noting charges of 50 sham account
debit to Krrish this would be the scheme
of entries in case of dishonor of a bill
if the bill is lttle maturity is counted
with the bank or endorsed to test our
understanding of the accounting entries
let us quickly go through to three more
examples a bill of rupees twelve
thousand was discounted by a with the
banker for rupees eleven thousand eight
hundred and eighty at maturity the bill
returned dishonoured noting charges
rupees fifty how much amount will the
bank deduct from a spank balance at the
time of such dishonor a twelve thousand
b-level thousand eight eighty see 12050
and d eleven thousand nine thirty the
bill was for twelve thousand it was
discounted fail evan thousand eight
eighty and noting charges were fifteen
when the bell was dishonoured so what
would the amount be it would be bill
amount plus floating charges so that is
twelve thousand plus 50 12050 so the
answer should be see 12050
x sold goods to buy for rupees two lakh
why paid cash sixty thousand x will
grant two percent discount on balance
and why request extra draw a bill for
balance the amount of the bill will be
option a one like ninety six thousand be
one like thirty six thousand see one
like 37 two hundred and D one lakh forty
thousand
sold goods for 2 lakhs paid cash of
60,000 so the balanced you is now only
one like 40,000 but X will grant 2
percent discount on this so less 2
percent of 1 lakh forty that's two
thousand eight hundred and y requests X
to draw a bill for the balance therefore
the amount of the bill after deducting
two percent of the discount would be one
like 37 two hundred option C correct
answer should be option C 1 lakh 37 two
hundred