Glossary · Also called Bounced cheque
Dishonoured cheque
A cheque the bank refuses to pay, usually because there are insufficient funds.
What it means
A cheque returned unpaid by the bank, reversing the earlier entry that assumed it would clear.
Example
A customer's cheque for RM300 bounces, so the RM300 is reinstated as owing.
Why it matters
It must be reversed in the books and reinstates the customer as a trade receivable.
In practice
A dishonoured cheque reverses an entry you have already made. When a customer's cheque is banked, you debit the bank account and credit the customer. If it later bounces, you undo this by debiting the customer again and crediting bank. This restores the debt. It is a common cause of a difference between the cash book and the bank statement, so it often appears as an adjustment in a bank reconciliation.
For example, T. Lim pays RM650 by cheque and the bank returns it marked "refer to drawer". The RM650 goes back onto Lim's account as a trade receivable and the bank balance falls by RM650.
Students sometimes confuse this with a stopped cheque. The difference lies in who acts. A dishonoured cheque is refused by the bank, usually because of insufficient funds. A stopped cheque is cancelled on the drawer's own instruction before it clears.
If cash book adjustments in reconciliations catch you out, one of our teachers can walk through the entries with you in the order examiners expect. Book a trial class.
Related terms
Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 3.4 Control accounts (page 13).
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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