Insolvency of Drawee

A person whose liabilities are more than the assets and is not in a position to pay off his liabilities is known as insolvent person.

A. Cancellation of old bill:

1. Books of Drawer:

Drawee’s A/c                      ...Dr.

       To Bills Receivable A/c      or

       To Bank A/c                       or

       To Bill Sent for Collection A/c    or

       To Endorsee’s A/c

(Being old bill cancelled)

2. Books of Drawee:

Bills Payable A/c                ...Dr.

       To Drawer A/c

(Being our acceptance cancelled)

B. Receiving final dividend and bad debts written off:

1. Books of Drawer:

Cash / Bank A/c                     ...Dr.

Bad Debts A/c                        ...Dr.

        To Drawee’s A/c

(Being final dividend received and bad debts written off)

2. Books of Drawee:

Drawer’s A/c                     ...Dr.

       To Cash / Bank A/c

       To Deficiency A/c

(Being final dividend paid and balance credited to deficiency account)