Explain what is a dishonored cheque and how it is being treated in the books of account?

October 4th, 2009 Comments off
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Explain what is a dishonored cheque and how it is being treated in the books of account?
Suggested Answer:

Dishonored Cheque is a cheque which is presented for payment and the drawer has insufficient fund in his or her account to cover the cheque which will then be returned to the payee marked “ refer to drawer”

Treatment:

Before any notice of cheque being dishonored:

  • When a supplier (payee) receives a cheque from a customer(drawer) the supplier’s cash book is debited and the customer’s account in the sales ledger is credited with the amount of the cheque

When the cheque is being dishonored:

  • The dishonored cheque is shown in the debit column of the bank statement.
  • We need to credit the supplier’s cash book and debit the customer’s account in the sales ledger i.e the customer is still owing us the money as his or her cheque has been dishonored.

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Financial Accounting

 
 

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