The Notes Receivable Dishonored account represents Andrews’ claim against any or all the indorsers whom he wishes to hold responsible. Instead of this, an entry might be made corresponding to entry (1) discussed above.
(c) In case the note should be charged back to Johnson, either by Andrews or by one of the other indorsers, he should make the following entries:
| Notes Receivable Discounted | 250.00 | ||
| Cash | 250.00 | ||
| P. Canning (or Notes Receivable Dishonored) | 250.00 | ||
| Notes Receivable | 250.00 | ||
It will be noticed that these two entries completely reverse the two original entries made by Johnson, viz.:
| Notes Receivable | 250.00 | ||
| P. Canning | 250.00 | ||
at the time he received the promissory note from Canning, and
| Cash | 250.00 | ||
| Notes Receivable Discounted | 250.00 | ||
when he transferred the note by indorsement.
It is to be understood that all expenses in connection with the dishonored note should be charged either to the personal account of the maker or to the Notes Receivable Dishonored account, as the case may be.
Where the Notes Receivable Dishonored account is used, it secures a good analysis of the claims against customers from the standpoint of probable realization and gives a relatively better basis for the bad debts estimate than that offered by the other manner of treatment. Of course, the use of such an account is limited to the ledger; it never appears as such on the balance sheet, being included there in the customers’ accounts with ample reserve for uncollectible items.