This paper presents an algorithm for a dollar bill recognition system. Although this thesis describes it in detail for the specific application of designing a dollar bill recognition system, the algorithm is quite general and can be applied to a variety of pattern recognition problems. The scheme operates on the image of a corner of the bill. Hough transform is used to find the edges and the corner point in the image. If there is any skew in the edges, it is corrected and a 256 x 256 pixel image is obtained. This image is then compressed to an 8 x 8 matrix, and features are extracted from a two dimensional Walsh Transform of this matrix. The process of feature selection is based upon the standard deviations of the Walsh coefficients. These features are then used by a Sequential Classifier for classifying the bill.