Question

Q. Dishonour of a note receivable

Write a narrative which includes a credit sale, a conversion to a Note receivable, the dishonour of the note and subsequent delayed payment. Then show the T accounts derived from your narrative. Create your own simple numbers.

Answer 1

I am taking a simple illustration of Bills of exchange you can write promissory note or any other negotiable instrument name in place of Bills of exchange.

Pass Journal in the books of X

1)Sold goods to Y $1000

2)Draw a bill for three months for the same amount.

3)On due date Y dishonoured the bill

4)Y agrees to pay the amount after 3 months with interest @12%pa.For this a new bill is drawn.

5)Y met the bill on due date.

Journal

Date	Prticulars	Debit($)	Credit($)
1	Y	1000
	To Sales		1000
	(Goods sold)
2	Bills Receivable	1000
	To Y		1000
	(Bill drawn)
3)	Y	1000
	To Bills Receivable		1000
	(Bill Dishonoured)
4)	Y. (1000*12%*3/12)	30
	To Interest		30
	(Interest due)
5)	Bills Receivable(2)	1030
	To Y		1030
	(New Bill drawn including interest)
6)	Bank	1030
	To Bills Receivable (2)		1030
	(Bill met on maturity)

Ledger

Dr Y A/C Cr

Particulars	amount	Particulars	Amount
To Sales	1000	By Bills Receivable	1000
To Bills Receivable	1000	By Bills receivable(2)	1030
To Interest	30
	2030		2030

Sales A/C

		By Y	1000

Bills Receivable A/C

To Y	1000	By Y	1000

Interest A/C

		By Y	30

Bill Receivable(2)

To Y	1030	By Bank	1030

Bank A/C

To B/R(2)	1030