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Question

Ram owes ₹ 2,000 to Mohan on 1st January, 2019. On this date, he accepted a draft for the amount for 3 months. Mohan got the bill discounted at his bank @ 6% p.a. On the due date, the bill was dishonured, nothing charges ₹ 20. Ram agreed to pay ₹ 520 immediately and accept another bill for the remaining amount for 3 months together with interest at 9% p.a. This bill was met on the due date. Give the Journal entries in the books of both the parties.

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Solution

Books of Mohan

Journal

Date

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2019

Jan.01

Bills Receivable A/c

Dr.

2,000

To Ram

2,000

(Ram’s acceptance received)

Jan.01

Bank A/c

Dr.

1,970

Discount Charges A/c

Dr.

30

To Bills Receivable A/c

2,000

(Ram’s acceptance was discounted at 6% p. a. for 3 months)

April 04

Ram

Dr.

2,020

To Bank

2,020

(Ram’s acceptance which was discounted with bank dishonoured)

April 04

Cash A/c

Dr.

520

To Ram

520

(Cash received from Ram)

April 04

Ram

Dr.

34

To Interest A/c

34

(Interest due from on amount outstanding at 9% p. a. for 3 months)

Working Note: Interest = 1,500 × 9% × 3/12 = Rs 34

April 04

Bill Receivable A/c

Dr.

1,534

To Ram

1,534

(Ram’s acceptance received for outstanding amount including interest)

April 04

Cash A/c

Dr.

1,534

To Bills Receivable A/c

1,534

(Cash received on honouring of bill)

Books of Ram

Journal

Date

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2019

Jan.01

Mohan

Dr.

2,000

To Bills Payable A/c

2,000

(Bill drawn by Mohan was accepted)

April 04

Bills Payable A/c

Dr.

2,000

Noting Charges A/c

Dr.

20

To Mohan

2,020

(Bill dishonoured on its due date)

April 04

Mohan

Dr.

520

To Cash A/c

520

(Cash paid to Mohan)

April 04

Interest A/c

Dr.

34

To Mohan

34

(Interest due to Mohan on outstanding balance for 3 months)

April 04

Mohan

Dr.

1,534

To Bills Payable A/c

1,534

(Bill accepted for the amount outstanding including interest to Mohan)

April 04

Bills Payable A/c

Dr.

1,534

To Cash A/c

1,534

(Bill discharged on maturity)


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