When a business received a cheque it debited its bank account and credited it party from which cheque is received.
Now understand it with example
Sales made to Mr Mohan by cheque Rs 10,000.
Journal entry of same will be :
Bank A/c Dr
To Sales A/c
Bank is Personal A/c as per Personal account Debit the receiver
Sales is Nominal A/c as per Nominal account Credit all income and
gains Sales is income.
Cheque Dishonored by Bank
The cheque received from Mohan dishonoured and the bank has charged Rs 550 as bank charges.
Now this Rs 550 charge is levied by the bank to us because of Mohan therefore that needs to be taken from Mohan with the cheque amount
Cheque amount entry
Mohan A/c Dr
To Bank A/c
(being cheque dishonoured )
· This is an adjustment entry where we Debit Mohan as to make him our debtors.
· Bank is credited because we adjusted the bank which we debited earlier to credit it now to make adjustments in our bank account.
The bank charged of a dishonoured cheque need to taken from Mohan.
Bank charges A/c Dr
dishonoured charges )
Adjustment of bank Charges.
To Bank charges A/c
(being cheque dishonoured charges to be taken from Mohan)
At the end Mohan is liable to pay us Rs 10,500.
Ledger of Party in Dishonoured cheque
|To bank Charges||550|
|By bal C/d||10,550|