On 1st January 2022 A draws on B three-month bill for Rs. 100.000 who accepts and return it to A on the same date. On 5' January A discounts it with his bank at 5% per annum. The acceptance is dishonored in the due date. and bank pays Rs. 500 as noting charges. How these transactions should be recorded in the journal of A & B.

 

On 1st January 2022 A draws on B three-month bill for Rs. 100.000 who accepts and return it to A on the same date. On 5' January A discounts it with his bank at 5% per annum. The acceptance is dishonored in the due date. and bank pays Rs. 500 as noting charges. How these transactions should be recorded in the journal of A & B.

The journal entries for the transactions involving A and B would be recorded as follows:

A's Journal Entries:

On January 1, 2022:

Accounts Receivable (B) 100,000

Bill Payable (B) 100,000

(To record the acceptance of the three-month bill by B)

On January 5, 2022:

Bank (Dr.) 99,315

Discount on Bill (Dr.) 685

Accounts Receivable (B) 100,000

(To record the discounting of the bill with A's bank at 5% per annum)

On the due date (dishonor of the acceptance):

Accounts Payable (B) 100,000

Noting Charges Expense 500

Bank (Cr.) 100,500

(To record the dishonor of the bill and payment of noting charges)

B's Journal Entries:

On January 1, 2022:

Bill Receivable (A) 100,000

Accounts Payable (A) 100,000

(To record the issuance of the three-month bill to A)

On the due date (dishonor of the acceptance):

Noting Charges Expense 500

Accounts Receivable (A) 100,000

(To record the dishonor of the acceptance and payment of noting charges)

Please note that the discount amount in A's journal entries has been calculated based on the 5% annual rate for the period from January 1, 2022, to January 5, 2022, which is four days (considering a 365-day year). The discount is the difference between the face value of the bill and the discounted value. In this case, the discount is Rs. 685, resulting in A receiving Rs. 99,315 from the bank.