Illustration 1.
Ajay purchased goods from Vijay for ` 20,000 on 1st January, 2021. He accepted a draft of
` 20,000 for 2 months drawn on him by Vijay on the same date. On 4th January, 2021, Vijay
got the bill discounted with his bank @ 18% p.a. At maturity, the bill was dishonoured, noting
charges amounting to ` 150. However, Vijay agreed to receive a sum of ` 5,750 (including
interest ` 600) from Ajay in cash and two promissory notes—one at 1 month for ` 5,000 and the
other at 3 months for ` 10,000 in full settlement. The first promissory note was duly honoured
but the second promissory note was dishonoured due to Ajay’s insolvency. Vijay could recover
30% of the amount due from him.
Pass Journal entries in the books of both the parties and Ajay’s Account in Vijay’s Ledger.
Solution: In the Books of Vijay
JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2021
Jan. 1 Ajay ...Dr. 20,000
To Sales A/c 20,000
(Being the goods sold to Ajay)
Jan. 1 Bills Receivable A/c ...Dr. 20,000
To Ajay 20,000
(Being the acceptance received of ` 20,000)
Jan. 4 Bank A/c ...Dr. 19,400
Discounting Charges A/c (` 20,000 × 18/100 × 2/12) ...Dr. 600
To Bills Receivable A/c 20,000
(Being the bill discounted with the bank @ 18% p.a.)
March 4 Ajay ...Dr. 20,150
To Bank A/c 20,150
(Being the amount of the dishonoured bill and noting charges debited to Ajay)
March 4 Ajay ...Dr. 600
To Interest A/c 600
(Being the interest receivable from Ajay on account of renewal
of his acceptance)
March 4 Cash A/c ...Dr. 5,750
Bills Receivable (1) A/c ...Dr. 5,000
Bills Receivable (2) A/c ...Dr. 10,000
To Ajay 20,750
(Being the cash ` 5,750 including ` 600 for interest and ` 150 for
noting charges and promissory notes received from Ajay)
April 7 Cash A/c ...Dr. 5,000
To Bills Receivable (1) A/c 5,000
(Being the amount received on maturity of the promissory note
at one month for ` 5,000)
June 7 Ajay ...Dr. 10,000
To Bills Receivable (2) A/c 10,000
(Being the dishonour of promissory note on Ajay’s insolvency)
June 7 Cash/Bank A/c ...Dr. 3,000
Bad Debts A/c ...Dr. 7,000
To Ajay 10,000
(Being the amount received from official receiver, the balance of
Ajay’s Account being written off as bad debts)
1
Dr. AJAY‘S ACCOUNT Cr.
Date Particulars ` Date Particulars `
2021 2021
Jan. 1 To Sales A/c 20,000 Jan. 1 By Bills Receivable A/c 20,000
March 4 To Bank A/c 20,150 March 4 By Cash A/c 5,750
March 4 To Interest A/c 600 March 4 By Bills Receivable (1) A/c 5,000
June 7 To Bills Receivable (2) A/c 10,000 March 4 By Bills Receivable (2) A/c 10,000
June 7 By Cash/Bank A/c 3,000
June 7 By Bad Debts A/c 7,000
50,750 50,750
In the Books of Ajay
JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2021
Jan. 1 Purchases A/c ...Dr. 20,000
To Vijay 20,000
(Being the purchases from Vijay)
Jan. 4 Vijay ...Dr. 23,600
To Bank A/c 3,600
To Bills Payable A/c 20,000
(Being cheque for ` 3,600 and acceptance given to Vijay)
March 4 Bills Payable A/c ...Dr. 20,000
Noting Charges A/c ...Dr. 150
To Vijay 20,150
(Being the acceptance given to Vijay dishonoured,
noting charges being paid by him)
March 4 Interest A/c ...Dr. 600
To Vijay 600
(Being the interest payable to Vijay on renewal of acceptance)
March 4 Vijay ...Dr. 20,750
To Cash A/c 5,750
To Bills Payable (1) A/c 5,000
To Bills Payable (2) A/c 10,000
(Being the cash ` 5,750 including ` 600 for interest and ` 150 for
noting charges and promissory notes given to Vijay)
April 7 Bills Payable (1) A/c ...Dr. 5,000
To Cash A/c 5,000
(Being the payment of promissory note on maturity)
June 7 Bills Payable (2) A/c ...Dr. 10,000
To Vijay 10,000
(Being the dishonour of acceptance due to insolvency)
June 7 Vijay ...Dr. 10,000
To Cash/Bank A/c 3,000
To Deficiency or Profit & Loss A/c 7,000
(Being ` 3,000 paid to Vijay and the balance amount not paid due to insolvency)
