Question

Briefly explain the effects of dishonour and noting of a bill of exchange

Answer 1

On the maturity of the bill, when the acceptor of the bill fails to make the payment, it is said that the bill is dishonoured.

This restores the liability of the acceptor.

Entry in the books of drawer:

Drawee A/c  Dr.
  To Bill Receivable A/c
(Being bill dishonoured)

Entry in the books of drawee:

Bill Payable A/c  Dr.
  To Drawer A/c
(Being bill dishonoured)

Noting charges is the fee paid to the notary public for noting and protesting the bill of exchange of its dishonour.

Effect of Noting charges in the books of the drawer:

Drawee A/c  Dr.
  To Bill Receivable A/c
  To Bill Payable A/c  
(Being bill dishonoured and Noting charges paid)

In the books of drawee:

Bill Payable A/ Dr.
Noting charges A/c    
 To Drawer A/c
(Being bill dishonoured and Noting charges due)