Question

When the writer of the promissory note rejects to pay the amount, what will be recorded in the debit and credit sides?. And explain very briefly what this journal entry entails?

Answer 1

Writer is the maker of promissory note.

If the maker rejects to pay, the promissory note becomes dishonoured. Then, Debit would be Bills Payable A/C, and credit would be Payee A/C.

Explanation:

This is just a reverse entry of the issuance of promissory note. At the time of issue, the maker makes a journal by debiting the Payee A/C and crediting the Bills Payable A/C. If the amount is paid in maturity, cash A/C would be credited in exchange of Bills Payable A/C, debit. But if it is not paid, the maker still have obligation to pay; therefore, Payee should be credited and in exchange of debit, Bills Payable.