Syllabus Edition
First teaching 2025
First exams 2027
Recording Dishonoured Cheques (Cambridge (CIE) IGCSE Accounting): Revision Note
Exam code: 0452 & 0985
Dishonoured cheques received from credit customers
What is a dishonoured cheque?
A dishonoured cheque is a cheque that has been returned by the bank
This could be because the customer did not have the funds to cover the transaction
Or it could be due to an error on the cheque such as a missing signature
This means that the money stated on the cheque has not been paid to the business by the customer
How do I record a dishonoured cheque in the ledger accounts?
A dishonoured cheque is recorded by making the same entries as when the cheque was received but on the opposite sides of the accounts
Credit the bank account in the nominal ledger
This is because the bank account would have been debited when the cheque was received
Credit the amount that is stated on the cheque
Credit the discount allowed account in the nominal ledger (if applicable)
If a cash discount was given to the credit customer then this also needs to be balanced
The discount allowed account would have been debited when the cheque was received
Debit the trade receivables' account in the sales ledger
This is because the trade receivable's account would have been credited when the cheque was received
The amount is added back onto the balance of the credit customer
Debit the full amount of the transaction including any cash discount
Business document | Book of prime entry | Account to debit | Account to credit |
|---|---|---|---|
Bank statement | Cash book | Trade receivable's account | Bank account (and maybe the discount allowed account) |
Case Study
Tina is a sole trader. Tina allows a 10% cash discount if goods are paid for within a month.
On 1 January, Dave buys goods on credit costing $500 from Tina. Tina records this by debiting Dave's account and crediting the sales account.
On 15 January, Dave benefits from the cash discount and sends Tina a cheque for $450. Tina records this by debiting $450 to the bank account and $50 to the discount allowed account. Tina balances this by making credit entries in Dave's account totalling $500.
On 22 January, Tina is notified by her bank that Dave's cheque has been dishonoured. Tina records this by crediting $450 to the bank account and $50 to the discount allowed account. Tina balances this by making debit entries to Dave's account totalling $500.
Here are how the entries appear in Tina's books.
Sales account
Date | Details | $ | Date | Details | $ |
Jan 1 | Dave | 500 |
Bank account
Date | Details | $ | Date | Details | $ |
Jan 15 | Dave | 450 | Jan 22 | Dave | 450 |
Discount allowed account
Date | Details | $ | Date | Details | $ |
Jan 15 | Dave | 50 | Jan 22 | Dave | 50 |
Dave account
Date | Details | $ | Date | Details | $ |
Jan 1 | Sales | 500 | Jan 15 | Bank | 450 |
Jan 22 | Bank | 450 | Jan 15 | Discount allowed | 50 |
Jan 22 | Discount allowed | 50 |
Dishonoured cheques issued to credit suppliers
What is a dishonoured cheque?
A dishonoured cheque is a cheque that has been returned by the bank
This could be because the business did not have the funds to cover the transaction
Or it could be due to an error on the cheque such as a missing signature
This means that the money stated on the cheque has not been paid to the supplier by the business
How do I record a dishonoured cheque in the ledger accounts?
A dishonoured cheque is recorded by making the same entries as when the cheque was received but on the opposite sides of the accounts
Debit the bank account in the nominal ledger
This is because the bank account would have been credited when the cheque was issued
Debit the amount that is stated on the cheque
Debit the discount allowed account in the nominal ledger
If a cash discount was received from the credit supplier then this also needs to be balanced
The discount received account would have been credited when the cheque was issued
Credit the trade payable's account in the purchases ledger
This is because the trade payable's account would have been debited when the cheque was issued
The amount is added back onto the balance of the credit supplier
Credit the full amount of the transaction including any cash discount
Business document | Book of prime entry | Account to debit | Account to credit |
|---|---|---|---|
Bank statement | Cash book | Bank account (and maybe the discount received account) | Trade payable's |
Case Study
Chris is a sole trader. Chris buys goods on credit from a supplier Daisy. Daisy allows Chris a 5% cash discount if he pays within a month.
On 1 May, Chris buys goods on credit costing $200 from Daisy. Chris records this by crediting Daisy's account and debiting the purchases account.
On 7 May, Chris benefits from the cash discount and sends Daisy a cheque for $190. Chris records this by crediting $190 to the bank account and $10 to the discount received account. Chris balances this by making debit entries in Daisy's account totalling $200.
On 29 May, Chris is notified by Daisy that his cheque has been dishonoured. Chris records this by debiting $190 to the bank account and $10 to the discount received account. Chris balances this by making credit entries to Daisy's account totalling $200.
Here are how the entries appear in Chris's books.
Purchases account
Date | Details | $ | Date | Details | $ |
May 1 | Daisy | 200 |
Bank account
Date | Details | $ | Date | Details | $ |
May 29 | Daisy | 190 | May 7 | Daisy | 190 |
Discount received account
Date | Details | $ | Date | Details | $ |
May 29 | Daisy | 10 | May 7 | Daisy | 10 |
Daisy account
Date | Details | $ | Date | Details | $ |
May 7 | Bank | 190 | May 1 | Purchases | 200 |
May 7 | Discount received | 10 | May 29 | Bank | 190 |
May 29 | Discount received | 10 |
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