Question

Malay drawn an after sight bill on 21st Nov, 2022 for ₹ 26,250 at 3 months on Malay. The bill is discounted by Malay at 8% p.a. with his bank. On maturity Malay finds himself unable to make payment of the bill and requests Malay to renew it. Malay accepts the request and draws a new bill at one month for ₹ 27,188 including interest which was duly accepted by Malay. Malay deposits the bill into bank for the collection. Malay honours the bill on the due date and bank deducted ₹ 313 as bank charges.
Pass necessary journal entries in the books of Malay.

Answer 1

In the books of Malay Journal Entries
Date	Particulars	L.F	Debit Amount (₹)	Credit Amount (₹)
2022
Nov. 21	Bills receivable A/c   ...Dr.		26,250	-
	To Malav’s A/c		-	26,250
	(Being bill drawn and acceptance received)
21	Bank A/c		25,725	-
	Discount A/c		525	-
	To Bills Receivable A/c		-	26,250
	(Being bill discounted with bank)
2023
Feb. 24	Malav’s A/c   ...Dr.		26,250	-
	To Bank A/c		-	26,250
	(Being the bill cancelled)
24	Malav’s A/c   ...Dr.		938	-
	To Interest A/c		-	938
	(Being interest amount due)		27,188	-
24	New Bills Receivable A/c   ...Dr.		-	27,188
	To Malav’s A/c
	(Being new bill drawn and acceptance received)
24	Bill Sent for Collection A/c   ...Dr.		27,188	-
	To New Bills Receivable A/c		-	27,188
	(Being new bill sent for collection to bank)
Mar. 27	Bank A/c   ...Dr.		26,875
	Bank Charges A/c   ...Dr.		313
	To Bill Sent for Collection A/c			27,188
	(Being the amount of the bill collected by the bank and credited to our Account by deducting bank charges)
	Total		1,61,252	1,61,252

Working notes:

(1) Discount = `"P" × "N" × "R" × 1/100 = 26,250 xx 3/12 xx 8/100 = ₹ 525`

(2) Interest charged by Malay on Balance amount:

= Amount of New bill – Balance amount

= 27,188 – 26,250 = ₹ 938.

(3) Amount received on honouring 2nd bill = 27,188 – 313 = ₹ 26,875.