When the bill had been discounted with the bank and dishonour takes place, then what happens between the bank and the drawer of the bill? Does he have to pay the amount to the bank? Is there a separate entry for that [Bank(not personal bank a/c) dr. To cash cr.]? And also, what is the use of noting dishonour of a bill? What benefit does the drawer get?
When a bill of exchange discounted with a bank gets dishonoured at the due date, in that case, the following entry is recorded.
Journal (In the books of Drawer) | |||||
Date | Particulars | L.F. | Debit Amount (Rs) | Credit Amount (Rs) | |
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| Drawee A/c | Dr |
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| To Bank A/c |
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| (discounted bill dishonoured and noting charges paid) |
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This entry implies that on dishonour the drawee again becomes the debtor of the drawer and bank becomes the creditor of the drawer (due to non-payment by drawee on due date). Here, the drawer has the right to recover the amount of the bill (together with noting charges) and is liable to bank for the same.
At the time of dishonour, payment to bank is not made immediately, therefore, payment entry is not recorded.
Noting of a dishonoured bill acts as an evidence (for the drawer) to formally protest against the non-payment by the drawee.