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Returned / Dishonoured Cheques

When you received a cheque from your customer and banked into your account, you will have debited your cash book. You would expect that this amount will appear on the bank statement. But there are times when the bank will not credit your account due on the cheque. As the bank has failed to honour the cheque, it is known as a dishonoured cheque.

Your cash book records the amount received but no amount goes into your bank account as the bank returns the cheque to you and deducts the cheque amount from your account by means of a contra entry. In preparing the bank reconciliation, the amount of the cheque has to be shown as a subtraction from your cash book balance.

Among the reasons for a cheque to be dishonoured are the following:

  • The figure of the amount on the cheque and the wording describing the amount differ. For example, $5,500 in figures on the cheque does not agree with the written words as five thousand and fifty dollars. The cheque has to be amended by the issuer.
  • The date especially the year has been written wrongly on the cheque. Instead of 20X2, 20X1 has been written on the cheque which makes the cheque older than six months, and so unacceptable by the bank.
  • The person who issues the cheque has insufficient funds in his bank account. As the bank has not granted him an overdraft, the cheque will be returned.

Journal entries to deal with a dishonoured cheque

Date Accounts Folio Debit Credit
$ $
Apr 08 Bank 3,300
C Crab 3,300
(Payment received from debtor)
Apr 13 C Crab 3,300
Bank 3,300
(Cheque dishonoured)

Postings to accounts

C Crab Account

Date Particulars Folio Amount Date Particulars Folio Amount
$ $
Mar 15 Sales 3,300 Apr 08 Bank 3,300
Apr 13 Bank: Chq dishonoured

Bank Account

Date Particulars Folio Amount Date Particulars Folio Amount
$ $
Apr 08
C Crab 3,300 Apr 13
C Crab: Chq dishonoured

From the above accounts, goods were sold to C Crab on 15 March. He made full payment of $3,300 on 8 April. On 13 April, his cheque was dishonoured. The full amount of the dishonoured cheque was debited to his account so that he remains a debtor, as if he didn’t make any payment.

Last Updated (Friday, 03 September 2010 19:20)