Meaning of Dishonour of Bill. The bill is dishonoured when the drawee is unable to make the payment on the maturity of the bill. When a bill is dishonoured, immediate notice should be given to the drawee and to (UPBoardSolutions.com) the endorser. If this is not done, the holder of the bill cannot claim for the due amount.

All the expenses incurred, relating to the dishonour of the bill should be debited to the person from whom the bill was received. The acceptor of the bill is primarily liable for payment, but the holder has a right to take actions against the drawer and other endorsers of the bill. Usually, the drawer takes up the bill dishonour and then exercises his right against the drawee.

Journal Entries in the books of a drawer under the five possibilities are as follows:

1. When the bill is retained with him, till the date of maturity Acceptor’s A/c Dr. To Bills Receivable A/c To Cash A/c (Being Bill dishonoured and noting charges paid in cash) Note: If noting charges are not paid then Cash A/c is not credited, the amount of bill is mentioned in the entry. 

2. When the drawer gets the Bill discounted with a bank: Acceptor’s A/c Dr. To Bank A/c (Being Bill dishonoured and noting charges paid by the bank) 

3. When the Bill is endorsed by the drawer: Acceptor’s A/c Dr. To Creditor’s A/c (Being Bill dishonoured and noting charges added) 

4. When the drawer deposits the Bill with bank for collection. Acceptor’s A/c Dr. To Bill for collection A/c To Bank A/c (Being Bill dishonoured and noting charges paid by the bank) 

5. In the book of drawee journal entries when Bill is dishonoured. B/P a/c Dr. (If given )Noting charges a/c Dr. To Drawer (Being Bill dishonoured and Noting charged paid)