Cash and Banking Transaction

Meaning and concept of cash and Banking Transactions

All financial transactions are ultimately settled in cash. Some transactions are settled immediately after purchase and sale and the rest after few days. In fact, business transactions are settled sooner or later either in cash or through bank. Usually, small sum of money are settled in cash and large sum are settled through bank. There is a greater chance of misappropriating cash while performing cash and banking transactions. Cash can be misappropriated by showing no record or less record of cash receipts. Hence, in order to have proper information and control over cash and banking transactions, every business maintains a separate cash book.

Cash Transactions

Cash transactions refer to cash receipts and payments. The receipts of cash from various sources and payment of cash on various heads are important routine transactions of a business. The main sources of cash receipts are sale of goods and services, sale of old assets, contribution of capital, can borrowed, interest, rent, commission and other receipt from customers. The main heads of payments are purchase of goods, wages, rent, stationary, interest on loan borrowed, and drawing, repayment of liabilities, advertising and payment to suppliers.

Banking Transactions

Banking transactions refer to all receipts and payment made through bank. It is inconvenient and risky affair to get and make payment of large sum directly in cash. A modern business operates bank account to settle all receipts and payment. It issues cheque for making payments and accepts cheque for getting amount. It may also instruct its bank to pay and collect amount on its behalf. In fact, the bank is treated by the business as its agent for collecting all receipts and making all payments. Except the balance in petty cash account, no cash balance is maintained in the office of a modem business. The following are the types of bank accounts in which amount can be deposited or cash transactions can be operated.

1. Current Account

A current account is one in which there is no restriction in respect of the number of withdrawals and extent of the amount to be drawn. Mostly, it is operated by businessmen for the sake of convenience and safety in handling cash transactions. No interest is allowed by the bank on the deposit made in current account. The trader is required to maintain a minimum balance in current account all the time. The minimum balance may vary depending upon the policy of individual bank. The business deposits cash and cheques in its current account and withdraws amount from it as and when required. The bank does not give credit to the current account for the cheque deposited until it collects the amount from the drawee bank. The business is required to fill in a pay-in-slip and submit to the bank at the time of depositing cash and cheques.

2. Saving Account

A saving account is one in which there is restriction in respect of the number of withdrawals and the extent of the amount to be drawn. Saving account is not suitable for business. Usually, it is opened by individuals. An individual prefers to open saving account to earn moderate interest. The depositor or the account holder is required to maintain the minimum balance all the times. The amount of minimum balance is usually less than that of the current account. Banks do not restrict for number of withdrawals provided daily withdrawals do not exceed the maximum limit. They require pre-information to withdraw more than the limit specified. They provide the facility of debit card from which amount can be withdrawn at any time not exceeding the limit fixed by the bank without issuing cheque. The -account holder can draw the money by using debit card from any branch bank where the ATM service is available.

3. Fixed Deposit Account

A fixed deposit account is one in which a large sum is deposited for fixed period of time, say, for 1 year or 2 years or more years. The account holder cannot withdraw her/his deposit before the period expires. If the depositor does not require the amount before the expiry of a fixed period, then he prefers to deposit his/her amount in fixed deposit account. The rate of interest is the highest in such account. The bank issues a fixed deposit receipt against the deposit made. The account holder returns the fixed deposit receipt on maturity and gets his/her amount back. Usually, the interest is allowed by the bank on half-yearly basis. The fixed deposit account is not suitable for a trader.

Cheque

Cheque is an important negotiable instrument which can be transferred by mere hand delivery. Cheque is used to make safe and convenient payment. It is less risky and the danger of loss is minimized. „

Cheque is an instrument in writing containing an unconditional order, addressed to a banker signed by the person who has deposited money with the banker requiring him to pay on demand a certain sum of money only to or to the order of certain person or to the bearer of instrument.

Features of cheque

1. Cheque is an instrument in writing: A cheque must be in writing. It can be written in ink pen, ball point pen, typed or even printed. Oral orders are not considered as cheques.
2. Cheque contains an unconditional order: Every cheque contains an unconditional order issued by the customer to his bank. It does not contain a request for payment. A cheque containing conditional orders is dishonoured by the bank.
3. Cheque is drawn by a customer on his bank: A cheque is always drawn on a specific bank mentioned therein. Cheque drawn by stranger are of no meaning. Cheque book facility is made available only to account holder who are supposed to maintain certain minimum balance in the account.
4. Cheque must be signed by customer: A cheque must be signed by customer (Account holder) . Unsigned cheques or signed by persons other than customers are not regarded as cheque.
5. Cheque must be payable on demand: A cheque when presented for payment must be paid on demand. If cheque is made payable after the expiry of certain period of time then it will not be a cheque.
6. Cheque must mention exact amount to be paid: Cheque must be for money only. The amount to be paid by the banker must be certain. It insist be written in words and figures.
7. Payee must be certain to whom payment is made: The payee of the cheque should be certain whom the payment of a cheque is to be made i.e. either real person or artificial person like joint stock company. The name of the payee must be written on the cheque or it can be made payable to bearer.
8. Cheque must be duly dated by customer of bank: A cheque must be duly dated by the customer of bank. The cheque must indicate clearly the date, month and the year. A cheque is valid for a period of six months from the date of issue.

Parties of cheque

Drawer: A drawer is a person, who draws a cheque.

Drawee: A drawee is a bank on whom a cheque is drawn.

Payee: A payee is a person in whose favour a cheque is drawn.

Types of cheque

1. Bearer Cheque:

When the words "or bearer.' appearing on the face of the cheque are not cancelled, the cheque is called a bearer cheque. The bearer cheque is payable to the person specified therein or to any other else who presents it to the bank for payment. However, such cheques are risky, this is because if such cheques are lost, the finder of the cheque can collect payment from the bank.

1. Order Cheque: When the word "bearer" appearing on the face of a cheque is cancelled and when in its place the word "or order" is written on the face of the cheque, the cheque is called an order cheque. Such a cheque is payable to the person specified therein as the payee, or to any one else to whom it is endorsed (transferred).
2. Uncrossed / Open Cheque: When a cheque is not crossed, it is known as an "Open Cheque" or an "Uncrossed Cheque". The payment of such a cheque can be obtained at the counter of the bank. An open cheque may be a bearer cheque or an order one.
3. Crossed Cheque: Crossing of cheque means drawing two parallel lines on the face of the cheque with or without additional words like "& CO." or "Account Payee" or "Not Negotiable". A crossed cheque cannot be encashed at the cash counter of a bank but it can only be credited to the payee's account.
4. Anti-Dated Cheque: If a cheque bears a date earlier than the date on which it is presented to the bank, it is called as "anti-dated cheque". Such a cheque is valid upto six months from the date of the cheque.
5. Post dated cheque: if a cheque bears a date which is yet to come (future date) then it is known as post-dated cheque. A post dated cheque cannot be honoured earlier than the the date of cheque.
6. stale cheque: if the cheque is presented for the payment after six months from the date of cheque it is called stale cheque. A stale cheque is not honoured by the bank.

(Jogender Goet, Bhesh Raj Banjade, 2012)

Bibliography

goet, J. (2012). Principal of accountinh. kalimati, kathmandu: Dreamland publication.