AccountsISC Class 11 · Bills of Exchange

Dishonour, Renewal, Retirement and Insolvency of Bills: ISC Class 11 Accounts

Updated 17 October 2026 · Fact-checked

When the acceptor fails to pay a bill on the due date it is dishonoured: the holder debits the acceptor (with noting charges) and credits Bills receivable. A bill may be renewed (a new bill, with interest, replaces the old one), retired before maturity at a rebate, or, if the acceptor becomes insolvent, only a part is recovered and the rest is a bad debt.

Only retirement happens before the due date; dishonour, renewal and insolvency all follow the acceptor's failure to pay on it.

Illustration drawn for QuestionBuddy.

Understand Dishonour, Noting, Renewal, Retirement and Insolvency of a Bill

Dishonour. Non-payment on the due date. The holder gets a *notary public* to note the fact; fees paid are *noting charges*, recovered from the acceptor.

*Retained bill:* Acceptor Dr (bill + noting charges), To Bills receivable, To Cash (noting charges).
*Discounted bill:* the bank debits the drawer: Acceptor Dr (bill + charges), To Bank (bill), To Cash (charges). If the drawer had endorsed the bill, the endorsee is debited: Acceptor Dr, To Endorsee (creditor).
*Acceptor's books:* Bills payable Dr, To Drawer (and noting charges: Noting charges Dr, To Drawer).

Renewal. If the acceptor cannot pay, he asks for a new bill; the old one is cancelled. Usually part of the amount is paid in cash and interest is charged on the unpaid part for the extended period. Drawer: Acceptor Dr, To Bills receivable (old bill cancelled); Cash Dr, To Acceptor (part payment); Acceptor Dr, To Interest received (interest); Bills receivable Dr, To Acceptor (new bill). Acceptor does the opposite with Bills payable.

Retirement. The acceptor pays before the due date. The holder allows a *rebate* for the unexpired period: Cash Dr, Rebate (discount) Dr, To Bills receivable. Acceptor: Bills payable Dr, To Cash, To Rebate (discount received).

Insolvency of the acceptor. The acceptor is declared insolvent and pays only a part, say 40 paise per rupee. If the bill is with the drawer, he debits Cash with the dividend, Bad debts with the loss, and credits Bills receivable. If the bill was discounted, the loss is on the drawer after the bank recovers from him.

Accommodation bills. (Mentioned for recognition only.) Bills drawn without a trade transaction to help each other raise funds.

Dishonour, Noting, Renewal, Retirement and Insolvency of a Bill: key facts

Interest on renewal: Interest = Unpaid amount x Rate x Extended period | Period in years; Charged to the acceptor.
Rebate on retirement: Rebate = Bill amount x Rate x Unexpired period | Cash paid = Amount - Rebate; Allowed by the holder.
Insolvency: Recovery = Bill amount x Paise per rupee / 100 | Loss = Bill amount - Recovery; Loss is a bad debt.

How to answer Dishonour, Noting, Renewal, Retirement and Insolvency of a Bill questions

Identify what happened to the bill and in whose books you are writing.

1Decide dishonour, renewal, retirement or insolvency.
2Find the amounts: charges, interest, rebate or dividend.
3Pass entries for the holder or acceptor as asked.
4Check that debit and credit are equal.

Dishonour, Noting, Renewal, Retirement and Insolvency of a Bill in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Renewal

Suppose a shopkeeper Divya accepted a Rs 40,000 bill but can pay only Rs 10,000 on the due date and asks for a new 3-month bill at 12% p.a. on the balance.

What is the amount of the new bill?

Try it first, then show the solutionSolution

Balance = 40,000 - 10,000 = 30,000.
Interest = 30,000 x 12/100 x 3/12 = 900.
New bill = 30,900.

Answer: Rs 30,900

Memory hook: New bill = unpaid balance + interest.

Tricks to remember Dishonour, Noting, Renewal, Retirement and Insolvency of a Bill

Short memory aids. Say each one aloud once, then use it on a question the same day.

Dishonour debits the acceptor
The one who failed to pay owes the holder again.
Use it when: Dishonour.
Retire early, rebate
Pay early, get a rebate for the days saved.
Use it when: Retirement.
Renewal = cancel then new
Old bill out, interest in, new bill.
Use it when: Renewal.

Dishonour, Noting, Renewal, Retirement and Insolvency of a Bill: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Dishonour of a retained bill · 1 mark · MCQBoard level

When a bill held by the drawer is dishonoured, the drawer debits:
(a) Bills receivable (b) the acceptor (c) cash (d) discount

Try it first, then show the solutionSolution

The acceptor becomes a debtor again; Bills receivable is credited.

Answer: (b) the acceptor

Example 2: Dishonour entries · 4 marks · Short answerBoard level

Raj holds Sam's acceptance of Rs 30,000, which is dishonoured; noting charges of Rs 150 are paid. Give entries in Raj's and Sam's books. What if Raj had discounted the bill with the bank earlier? (4 marks)

Try it first, then show the solutionSolution

Raj: Sam Dr 30,150, To Bills receivable 30,000, To Cash 150.
Sam: Bills payable Dr 30,000, Noting charges Dr 150, To Raj 30,150.
Discounted: Sam Dr 30,150, To Bank 30,000, To Cash 150.

Answer: Raj: Sam Dr 30,150; To BR 30,000; To Cash 150. Sam: BP Dr 30,000, Noting charges Dr 150, To Raj 30,150. If discounted, credit Bank in place of Bills receivable.

Example 3: Renewal · 6 marks · Long answerHarder board level

A bill of Rs 50,000 accepted by Tina is renewed on its due date: she pays Rs 20,000 in cash and accepts a new 3-month bill including interest at 12% p.a. on the balance. Pass entries in the books of the drawer Uday. (6 marks)

Try it first, then show the solutionSolution

Cancel old: Tina Dr 50,000, To Bills receivable 50,000.
Cash Dr 20,000, To Tina 20,000.
Balance 30,000; interest = 30,000 x 12/100 x 3/12 = 900: Tina Dr 900, To Interest 900.
New bill: BR Dr 30,900, To Tina 30,900.

Answer: New bill of Rs 30,900; Tina's account is then settled (50,000 + 900 - 20,000 - 30,900 = 0).

Example 4: Retirement · 5 marks · Long answerHarder board level

Vimal accepted a Rs 60,000 bill due in 3 months and retires it after 1 month, the drawer Wasim allowing a rebate of 12% p.a. Find the cash paid and give entries in both books. (5 marks)

Try it first, then show the solutionSolution

Unexpired = 2 months. Rebate = 60,000 x 12/100 x 2/12 = 1,200.
Cash = 58,800.
Wasim: Cash Dr 58,800, Rebate Dr 1,200, To BR 60,000. Vimal: BP Dr 60,000, To Cash 58,800, To Rebate received 1,200.

Answer: Cash Rs 58,800; rebate Rs 1,200.

Example 5: Insolvency · 5 marks · Long answerHOTS / competency

Xavier holds a Rs 25,000 bill accepted by Yash, who becomes insolvent and pays 60 paise per rupee. Another Rs 20,000 bill of Yash was earlier discounted by Xavier, and the bank dishonoured it, recovering from Xavier. Compute total dividend and the bad debt, and state why the discounted bill matters. (5 marks)

Try it first, then show the solutionSolution

Retained bill: dividend 25,000 x 0.60 = 15,000; bad debt 10,000.
Discounted bill: Xavier pays the bank 20,000, then recovers 12,000; bad debt 8,000.
Total dividend 27,000; total bad debt 18,000.

Answer: Dividend Rs 27,000, bad debt Rs 18,000. Because the bank can recover from Xavier, he still bears the loss on a discounted bill.

Where students lose marks in Dishonour, Noting, Renewal, Retirement and Insolvency of a Bill

The slips examiners see most often, and what to write instead.

Mistake: Crediting noting charges to Bills receivable
Treating them as part of the bill.
Wrong working
BR Cr 30,150
Right working
BR Cr 30,000, Cash Cr 150
Do this: Noting charges are separate.
Usually costs: 1-2 marks.
Mistake: Interest on the whole bill in renewal
Ignoring part payment.
Wrong working
50,000 x 12% x 3/12
Right working
30,000 x 12% x 3/12
Do this: Interest only on the unpaid part.
Usually costs: 2 marks.
Mistake: Rebate for the elapsed period
Mixing time.
Wrong working
60,000 x 12% x 1/12
Right working
60,000 x 12% x 2/12
Do this: Use unexpired days.
Usually costs: 2 marks.

Exam tips

Check which book (drawer, acceptor, endorsee) is asked.
Show interest and rebate calculations.
For insolvency, state the loss as bad debt.

Practice questions on Dishonour, Noting, Renewal, Retirement and Insolvency of a Bill

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
Noting charges on dishonour are paid by the holder and recovered from the:
(a) bank (b) acceptor (c) notary (d) endorser
Hint
Who failed to pay?
Answer
(b) acceptor
Q2 · 3 marks · Short answerBoard level
Distinguish between renewal and retirement of a bill. (3 marks)
Hint
Time and cost.
Answer
Renewal: the old bill is cancelled and replaced by a new one, with interest, because the acceptor cannot pay on the due date. Retirement: the acceptor pays before the due date and gets a rebate.
Q3 · 6 marks · Long answerHarder board level
A Rs 36,000 bill is dishonoured. Noting charges Rs 120. The drawer receives Rs 6,000 in cash and a new 2-month bill for the balance with interest at 12% p.a. on it (noting charges are also to be recovered). Pass entries for the drawer. (6 marks)
Hint
Balance includes charges.
Answer
Acceptor Dr 36,120, To BR 36,000, To Cash 120. Cash Dr 6,000, To Acceptor 6,000. Balance 30,120; interest = 30,120 x 12/100 x 2/12 = 602.40; new bill = 30,722.40. Acceptor Dr 602.40, To Interest 602.40; BR Dr 30,722.40, To Acceptor 30,722.40.
Q4 · 4 marks · Short answerHarder board level
A bill of Rs 48,000 due in 4 months is retired after 1 month at 9% p.a. rebate. Find the cash paid, and then find what the same bill would cost in cash if retired after 3 months. (4 marks)
Hint
Unexpired 3 months and 1 month.
Answer
After 1 month: rebate = 48,000 x 9/100 x 3/12 = 1,080; cash 46,920. After 3 months: rebate = 48,000 x 9/100 x 1/12 = 360; cash 47,640.
Q5 · 3 marks · Short answerHOTS / competency
A holder says: "Dishonour of a bill cancels the debt." Evaluate, using a bill of Rs 15,000 dishonoured by Ila. (3 marks)
Hint
Debt remains.
Answer
Incorrect. Dishonour only cancels the bill as an instrument; Ila owes Rs 15,000 plus noting charges again as an ordinary debtor, and the holder may sue or take a fresh bill.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Noting charges are paid to?Show answer
The notary public.
2.On dishonour, who is debited?Show answer
The acceptor.
3.Renewal interest is on?Show answer
The unpaid balance.
4.Rebate is for?Show answer
The unexpired period.
5.Loss on insolvency is?Show answer
Bad debt.

Dishonour, Noting, Renewal, Retirement and Insolvency of a Bill: frequently asked questions

Do noting charges always occur?

Only when the holder gets the dishonour noted.

Can a retired bill be discounted?

No, it is already paid.

Who gets the rebate?

The acceptor.

Is renewal a new transaction?

It replaces the old bill.