Dishonor occurs when the drawee refuses to pay or cannot pay the bill at maturity. The holder must provide formal notice to all prior parties (drawer and endorsers) within reasonable time, usually one working day after dishonor. Noting is a formal certificate issued by a notary public recording the fact and reason for dishonor. Protesting is a formal notarial act recording dishonor with detailed reasons and date. Cost of noting and protesting (Noting Charges/Protesting Fees) is borne by the drawer initially and recovered from debtor. Journal entries for dishonor: Debit Debtor's Account (or Bills Receivable, then debit Debtor), Credit Bills Receivable. This reverts the bill to a normal debtor account as it's no longer a valid bill. Noting charges are also debited to debtor account and credited to bank/cash. When dishonored bill is renewed: Create a new bill, possibly for increased amount including original amount plus interest and noting charges. When dishonored bill remains unpaid: Debtor becomes a regular debtor on whom further legal action may be taken. Contingent liability for drawer ceases when bill is honored or when statutory period of limitation expires. Dishonored bill should be recorded in ledger showing the original amount, date of dishonor, and reasons. This information is important for credit control and recovery procedures. Exam tip: Understand the procedures following dishonor; practice calculating amount of new bill when dishonored bill is renewed; know who bears the cost of noting and protesting.