The compilation of these Bill of Exchange Notes makes students exam preparation simpler and organised.
Dishonour of a Bill
When the drawee (a person who is liable to pay) is not able to make the payment on the date of maturity of a bill, a bill is said to be dishonoured. In this situation liability of the drawee is restored. Dishonour of a bill can be either by non-acceptance or non-payment. A dishonoured bill is equivalent to a bounced cheque.
Dishonour by Non-Acceptance
Bill of exchange requires acceptance by the drawee when it is presented, however, if on presenting the bill of exchange, it gets non-acceptance, it will amount to dishonour.
Dishonour by Non-Payment
When the drawee of the bill of exchange commit default in making the payment of the bill on maturity to the drawer, it is said to be dishonoured of a bill of exchange by non-payment.
Possible reasons why the bill is dishonoured by non-payment?
- Due to insufficient funds in the drawee’s a/c.
- The drawee is unable to pay because of insolvency, or
- The drawee simply does not want to pay
When the bill gets dishonoured, entries that were made at the time of receipt of a bill are reversed.
Examples:
Example 1.
Rashi (drawer) received a bill of exchange duly accepted by Ayushi (drawee), which was dishonoured. The entries of dishonour will be as follows in the books of Rashi (drawer):
When the bill was kept by Rashi till maturity
When the bill had been endorsed by Rashi in favour of Raghav
When the bill was discounted by Rashi with her bank
When the bill was sent for collection by Rashi
Example 2.
On April 01, 2018, Pinky sold goods to Shreya for Rs. 20,000 and drew upon her a bill of exchange for 3 months. Shreya accepted the bill and returned it to Pinky. On the date of maturity, the bill was dishonoured by Shreya. Entries in all the cases listed below in the books of Pinky and Shreya will be:
Case 1: When the bill is kept by Pinky till its maturity;
Books of Pinky
Case 2: When the bill is discounted by Pinky with the bank for Rs. 19,600
Books of Pinky
When the bill is endorsed to Navin by Pinky.
Books of Pinky
Whereas, in the book of Shreya, the following entries will be recorded
Books of Shreya
