Dd cancellation entries

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

23 January 2014 Hi,

I Have Purchased a Cash DD from bank from my Company works, Due to some reasons we have cancelled the DD.

And we have made the Entry- Cash purchase of DD.
But the cancelled DD Amount banker transferring to company Current Ac.

now how we have to make the entries for cancelled DD amount and transferring bank Ac.

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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20 July 2024 When you cancel a Demand Draft (DD) and the bank refunds the amount to your company's current account, you need to make accounting entries to reflect this transaction properly. Here’s how you can handle the entries:

### 1. Initial Purchase of DD

Assume you initially purchased the DD and recorded the following entry:

- **Purchase of DD**:
```
Dr. Demand Draft Account
Cr. Bank Account
```

### 2. Cancellation of DD and Refund

Now, when you cancel the DD and the bank refunds the amount to your company’s current account, you need to reverse the initial entry made for the purchase of DD and record the refund:

- **Cancellation and Refund Entry**:
- Reverse the initial entry for the purchase of DD:
```
Dr. Bank Account
Cr. Demand Draft Account
```
- Record the refund amount received from the bank:
```
Dr. Bank Account
Cr. Other Income or Miscellaneous Income Account
```

### Explanation:

- **Reversal Entry**: This reverses the initial entry made for purchasing the DD, reducing the Demand Draft Account and increasing the Bank Account.

- **Refund Entry**: When the bank refunds the amount, it should be recorded as income. You can classify this under "Other Income" or "Miscellaneous Income" in your accounting records. This reflects the money returned to your company, which is not related to your normal business operations.

### Example:

Let's assume:
- Initially, you purchased a DD for Rs. 10,000.
- You recorded:
```
Dr. Demand Draft Account Rs. 10,000
Cr. Bank Account Rs. 10,000
```

- Subsequently, you cancel the DD and the bank refunds Rs. 10,000 to your current account.

- You would reverse the initial entry:
```
Dr. Bank Account Rs. 10,000
Cr. Demand Draft Account Rs. 10,000
```

- Then record the refund amount received:
```
Dr. Bank Account Rs. 10,000
Cr. Other Income Account Rs. 10,000
```

### Final Notes:

- Ensure that the entries accurately reflect the cancellation of the DD and the subsequent refund received from the bank.
- Always document the reason for cancellation and keep records of communication with the bank regarding the refund.
- If you're uncertain about the specific accounting treatment or have complex transactions, it's advisable to consult with your accountant or financial advisor to ensure compliance with accounting standards and proper recording of transactions.

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