Page 144 - ISCDEBK-XI

Bill of Exchange 17.9
Illustration 3.
In the books of A there was a balance of ` 20,000 due from B on 31st March, 2021, which was
written off as bad debts in closing of the books on that date. On 10th July, 2021, B paid cash
` 18,000 in full and final settlement of his dues.
Further transactions took place between A and B as follows:
2021
Aug. 5 A sold goods to B valued at ` 25,000 which were paid by cheque ` 4,000 and a bill of
exchange for ` 21,000 at 1 month. A discounted the bill of exchange at the bank for ` 20,800.
Sept. 8 B’s bill was dishonoured and A was called upon to take it up. This he did by paying
noting charges of ` 100.
Sept. 9 B met his obligation for ` 21,000 with a bill at 2 months for the same amount, paid
cash for noting charges on the old bill and interest of ` 200 on the new bill.
Nov. 12 B met his bill by paying cash ` 11,000 and accepted a fresh bill at 2 months for
` 10,400 including interest.
Dec. 12 B having became insolvent paid final dividend of 40 paise in a rupee.
Show Journal entries in the books of A and necessary Ledger accounts in the books of B.
Solution: JOURNAL OF A

Date Particulars L.F. Dr. (`) Cr. (`)
2021
March 31 Bad Debts A/c ...Dr. 20,000
To B 20,000
(Being the amount due from B written off as bad debts)
March 31 Profit & Loss A/c ...Dr. 20,000
To Bad Debts A/c 20,000
(Being the bad debts transferred to Profit & Loss Account)
July 10 Cash A/c ...Dr. 18,000
To Bad Debts Recovered A/c 18,000
(Being the recovery of bad debts from B in full settlement of ` 20,000)
Aug. 5 B ...Dr. 25,000
To Sales A/c 25,000
(Being the goods sold)
Aug. 5 Bank A/c ...Dr. 4,000
Bills Receivable A/c ...Dr. 21,000
To B 25,000
(Being the receipt of a cheque for ` 4,000 and a bill of ` 21,000 from B)
Aug. 5 Bank A/c ...Dr. 20,800
Discounting Charges A/c ...Dr. 200
To Bills Receivable A/c 21,000
(Being the bill discounted with the banker for ` 20,800)
Sept. 8 B ...Dr. 21,100
To Bank A/c 21,100
(Being the bill dishonoured at maturity and noting charges paid ` 100)
Sept. 9 B ...Dr. 200
To Interest A/c 200
(Being the interest charged for the dishonour of bill)