Dishonor a Note
Definition: When the maker of a promissory note fails to pay at maturity. The payee must transfer the full maturity value from Notes Receivable to Accounts Rec…
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When the maker of a promissory note fails to pay at maturity. The payee must transfer the full maturity value from Notes Receivable to Accounts Receivable and may charge a dishonored note fee.
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Record dishonored note | ||
| Maker defaults on $5,000 note with $150 interest. | ||
| Accounts Receivable | $5,150 | |
| Notes Receivable | $5,000 | |
| Interest Revenue | $150 | |
| Note removed; full maturity value charged to A/R. | ||
| 2. Write off if uncollectible | ||
| Collection efforts fail. | ||
| Allowance for Doubtful Accounts | $5,150 | |
| Accounts Receivable | $5,150 | |
| Written off against allowance. | ||
Related Subjects
Related
- Notes ReceivableA dishonored note was originally a notes receivable
- Maturity DateDishonor occurs when the maker fails to pay at maturity
- Maturity ValueThe full maturity value is charged to A/R
- Maker of the NoteThe maker is the party who failed to pay
Next Step
- Accounts ReceivableDishonored notes are reclassified to A/R for collection
See Also
- Allowance for Doubtful AccountsDishonored notes may ultimately be written off
External Links
- Promissory note — Wikipedia