Cash and Bank Accounts

Where there is only a journal being maintained for the purpose of recording transactions in an organisation, Cash Account and Bank Account are nothing but ledger accounts. Every transaction is recorded in the journal and posted therefrom into the ledger. Therefore with regard to cash and bank transactions (or for that matter any transactions) we see recording and posting taking place. Some Cash and Bank Transactions 1. 2. 3. 4. 5. 6. June 5th :: Sold Goods for Cash Rs. 50,000 June 6th :: Paid into Bank Rs. 40,000 June 8th :: Paid Ram by cheque Rs. 3,000 June 8th :: Bought Goods for Cash Rs. 8,000 June 9th :: Withdrawn from bank for parnters personal use Rs. 1,000 June 10th :: Received payment from Ghanshyam on account by cheque Rs. 12,000

Journal entries for the above transactions would be Hide/Show Journal in the books of M/s __ for the period from ____ to _____ V/R Date Particulars No. June 5th Debit L/F Amount (in Rs) Cash a/c Dr 50,000 To Sales a/c [ Being the amount received on sale of goods vide receipt no:___ dated:__ ] Bank a/c Dr 40,000 To Cash a/c [ Being the amount paid into bank vide counterfoil no:___ dated:__ ] Ram a/c Dr 3,000 To Bank a/c [ Being the amount paid to Ram on accont by cheque no: ___ dated: ___ ] Purchases a/c Dr 8,000 To Cash a/c [ Being the amount paid towards purchase of goods for cash vide voucher no :___ dated:__ ] Drawings a/c Dr 1,000 To Bank a/c [ Being the amount withdrawn by the partner for personal use from the bank vide cheque no:___ dated:__ ] Bank a/c Dr 12,000 Credit Amount (in Rs) 50,000

June 6th

40,000

June 8th

3,000

June 8th

8,000

June 9th

1,000

June

10th

To Ghanshyam a/c [ Being the amount received from Ghanshyam on account vide cheque no:___ dated:__ ]

12,000

The Ledger Accounts Dr Cash a/c Cr Date Particulars J/F Amount Date (in Rs) 12,000 Jun 6th 50,000 Jun 8th 62,000 14,000 Dr Bank a/c Cr Date Particulars J/F Amount (in Rs) 32,000 40,000 12,000 84,000 80,000 Date Particulars J/F Amount (in Rs) 3,000 1,000 80,000 84,000 Particulars J/F Amount (in Rs) 40,000 8,000 14,000 62,000

To Balance b/d Jun 5th To Sales a/c Total To Balance b/d

By Bank a/c By Purchases a/c By Balance c/d Total

To Balance b/d Jun 6th To Cash a/c Jun 10th To Ghanshyam a/c Total To Balance b/d

Jun 8th By Ram a/c Jun 9th By Drawings a/c By Balance c/d Total

Where Subsidiary Books are Maintained (Cash Book)

Where subsidiary books are being maintained in the organisation, Cash and Bank transactions are recorded at the same place in a book called "Cash Book". The Cash Book is maintained in a ledger account format. It has got a debit side as well as a credit side. Recording in this book is done exactly in the same manner as posting the journal entry into the ledger. A Cash Book is a subsidiary book. It has the peculiarity of being both a journal as well as a ledger. If a transaction is entered in the Cash Book, both the recording aspect as well as the posting aspect are complete, i.e. it amounts to writing the journal entry as well as posting into the ledger. We know that posting is to be done into two ledger accounts. Writing in the Cash book amounts to completion of posting in the ledger accounts within the cash book i.e. the Cash a/c and Bank a/c. Posting into the other account involved in the transaction has to be done and that cannot be assumed to be complete. Types of Cash Books

Single Column Cash Book This is a book where there is only one column for Cash a/c. Technically this is nothing but a Cash a/c. Maintaining single column cash book amounts to maintaining only the ledger account i.e. Cash a/c with regard to cash transactions without recording the cash transactions in a journal. Why not call it a ledger then? Though in practice while working out problems we prepare the cash book exactly in the same manner as a ledger, it is not so. The narration which we write in a journal entry is also written in the cash book, unlike in the case of a Cash a/c in the ledger where we just write the ledger a/c name. Dr Bank a/c Cr

Date Particulars Jun 5th

J/F

Amount Date Particulars (in Rs) 12,000 50,000 Jun 8th

J/F

Amount (in Rs) 40,000

To Balance b/d To Sales a/c [Amount received on sale of goods vide receipt no:___ dated:__]

Jun 9th

Total

By Bank a/c [Paid into bank vide counterfoil no:__ dated:__ ] By Purchases a/c [Paid towards purchase of goods for cash vide voucher no :___ dated:__ ] By Balance c/d Total

8,000

12,000

62,000 12,000

62,000

To Balance b/d

Double Column Cash Book This is a book where both the Cash a/c and the Bank a/c are maintained together in the same book. The debit and credit sides of the book have two columns. The debit side columns represent the debit side of Cash a/c Bank a/c and the credit side columns represent the credit side of Cash a/c Bank a/c and the credit. This is nothing but the Cash and Bank accounts shown side by side together. The above transactions recorded in a double column cash book

Dr Cash Book Cr Date Particulars 5/6 6/6 10/6 To To To To a/c Balance b/d Sales a/c Cash a/c Ghanshyam J/F C Cash Bank Date Particulars (in Rs) (in Rs) 12,000 50,000 32,000 40,000 12,000 6/6 8/6 8/6 9/6 10/6 By By By a/c By a/c By c/d J/F Cash Bank (in Rs) (in Rs) 40,000 3,000 8,000 12,000 1,000 80,000

Bank a/c C Ram a/c Purchases Drawings Balance

Total 11/6 To Balance b/d

62,000 12,000

84,000 80,000

Total

62,000

84,000

"C" in J/F Column [Contra Entry] A contra entry in a term used in case of double/triple column cash book. It is an indication that the two ledger accounts which are affected by the transaction are posted to here itself i.e. the second posting is also in the same book. Contra entries appear when the transaction involves both the cash a/c and the Bank a/c. Journal in the books of M/s __ for the period from ____ to _____ Debit V/R Date Particulars L/F Amount No. (in Rs) June Bank a/c Dr 40,000 6th. To Cash a/c [ Being the amount paid into bank vide counterfoil no:___ dated:__ ]

Credit Amount (in Rs) 40,000

Triple Column Cash Book This is a book where details relating to four accounts i.e. Cash a/c, Bank a/c, Discount Received a/c and Discount Allowed a/c are maintained together in the same book. Modifying the transactions above to incorporate discounts also. 1. June 5th :: Sold Goods for Cash Rs. 50,000 2. June 6th :: Paid into Bank Rs. 40,000 3. June 8th :: Paid Ram by cheque Rs. 2,880 after discount to clear the total due of Rs. 3,000 4. June 8th :: Bought Goods for Cash Rs. 8,000 5. June 9th :: Withdrawn from bank for parnters personal use Rs. 1,000

6. June 10th :: Received a cheque for Rs. 12,810 from Ghanshyam on account. Discount givne Rs. 190 Dr Cash Book Date Particulars 5/6 6/6 10/6 J/F Cr

11/6

Cash D/A Bank D/R Cash Bank (in Date Particulars J/F (Rs) (in Rs) (Rs) (in Rs) (in Rs) Rs) To Balance b/d 12,000 32,000 6/6 By Bank a/c C 40,000 To Sales a/c 50,000 8/6 By Ram a/c 120 2,880 To Cash a/c C 40,000 8/6 By Purchases a/c 8,000 To Ghanshyam a/c 190 12,810 9/6 By Drawings a/c 1,000 10/6 By Balance c/d 12,000 80,930 Total 190 62,000 84,810 Total 120 62,000 84,810 To Balance b/d 12,000 80,930 Note Unlike the Cash and Bank columns, the DA (Discount Allowed) column and DR (Discount Received) column are not two sides of the same account. They represent two different accounts. Therefore, they are never to be balanced. Only their totals are drawn and shown in the total cell.

What difference does using or not using Subsidiary Books make?

Maintaining the details realting to Cash and Bank transactions with or without the subsidiary book called "Cash Book" would influence the way we we record the transactions. If we are not using the subsidiary book, then a journal entry should be recorded for each transaction and then it should be posted into the relevant ledger accounts affected by the transaction. If we are using the subsidiary book, "Cash Book" then a special journal entry should be recorded for each transaction in the cash book. This would be in the form of a ledger posting (including narration). The ledger posting relating to a second ledger account (other than either cash a/c or bank a/c) should be done. The posting relating to the cash a/c or bank a/c involved in the transaction is complete at the time the entry is recorded since the Cash book acts both as a journal as well as a ledger with regard to cash a/c and bank a/c. However, when the transaction involves both the cash a/c and the bank a/c, the second posting should also be done in the "Cash Book" itself, in which case we cannot assume that posting with regard to cash a/c and bank a/c is complete immediately on the transaction being recorded. Only one of the postings can be assumed to be complete in such a case.

Bank Column of Cash Book

In learning this topic, we will be concerned about the Bank account being maintained in the accounting books of the organisation. The bank account is addressed "Bank a/c", "Bank Column", "Bank Column of Cash Book", "Cash Book Bank Column", etc. In all these situations we should understand it to be a reference to "Bank a/c".

Bank Transactions Organisations Books

By bank transactions we mean all those transactions relating to the business which are considered for the purpose of accounting which have their effect on "Bank a/c" or any other account by a different name that is used by the organisation to indicate the bank a/c. These transactions are recorded in the accounting books of the organisation

In a journal when the subsidiary book, "Cash Book" is not being maintained. Posting is done to the Bank a/c as well as the other account affected by the transaction. In the bank column of "Cash Book" when the subsidiary book is being maintained.

Bank Transactions Bank Books

An organisations bank transactions also affect the bank. They also form accounting transactions for the bank. However, their effect and influence on their accounts is not the same as the effect on the organisation. Bank has its own books of accounts. The bank would maintain the business organisations (Say M/s Manzil Enzymes) account in its book. For the bank, the "Organisation a/c" i.e. "M/s Manzil Enzymes a/c" is a personal account. It basically deals with two types of transactions, receiving money into the organisations account or paying from the organsation a/c. Some bank transactions relating to the organistion M/s Manzil Enzymes. 1. Aug 1st :: Paid Cash into bank (new account opened) Rs. 18,000. 2. Aug 5th:: Issued a cheque (No. AS01) to Sam Rs. 5,400 in full settlement of Rs. 5,500 due. 3. Aug 8th :: Received a cheque (No. MG41) for Rs. 12,000 towards sale proceeds and deposited the same into bank. 4. Aug 13th :: Withdrawn for Mr. Rao's personal use by cheque (No. AS02) Rs. 5,000 5. Aug 14th :: Mr. Rao, issued a cheque (No. TR82) for Rs. 50,000 towards additional capital Rs. 50,000. 6. Aug 15th :: Issued a cheque (No. AS03) for Rs. 24,000 towards purchase of Furniture. Recording in M/s Manzil Enzymes Books We assume that the organisation maintains a Triple Column Cash Book (subsidiary book).

Dr Cash Book Cash D/A Bank Date Particulars J/F (in Date (Rs) (in Rs) Rs) 1/8 To Cash a/c C 18,000 1/8 8/8 To Sales a/c 12,000 5/8 14/8 To Capital a/c 50,000 13/8 15/8 15/8 Total 80,000 16/8 To Balance b/d 45,600 Debit?? Credit ?? Particulars J/F

Cr D/R Cash Bank (Rs) (in Rs) (in Rs) 18,000 100 5,400 5,000 24,000 45,600 80,000

By Bank a/c C By Sam a/c By Drawings a/c By Furniture a/c By Balance c/d Total

The principles of debit and credit for a personal account read "Debit the benefit receiver and Credit the Giver". Therefore, whenever we deposit cash, cheques into the bank, "Bank a/c", which represents the bank is debited (being the benefit receiver). Whenever we withdraw cash or issue cheques from the bank the "Bank a/c" is credited (being the benefit giver). In general whenever some amount gets into our bank account, Bank a/c is debited and whenever some amount goes out of our account Bank a/c is credited. Some instances of

Bank a/c being Debited 1. Cash paid into the Bank 2. Cheques received by the organisation towards the amounts it has to receive and deposited in the bank for collection. This is recorded on the date of deposit in the bank. 3. Interest due and depostied by the bank to the organisation on the bank account balances. 4. Direct payments by the customers into the bank account. 5. Amounts collected by the bank on behalf of the customer like Dividends on shares, Interest on Investments, Rent on property etc. Some of these may be on a standing instruction. 6. Amount receivable towards a bill receivable honoured on the due date, when it is collected by the bank. 7. Amount receivable on discounting bills by the bank. 3, 4, 5, 6 will be recorded when the information relating to the same is received from the bank. 4 may also be recorded when the customer gives such information.

Bank a/c being Credited 1. Cash withdrawn from the Bank

2. Cheques issued by the organisation towards the amounts it has to pay. This will be recorded on the date of issue of the cheque. 3. Interest and other charges collected by the bank towards the services it provides the organisation like collection of outstation cheques etc. 4. Amounts paid by the bank on behalf of the customer (organisation) like rent, insurance premium, etc. Some of these may be on account of a standing instruction. 5. Amount paid towards clearing a bill payable by a cheque or by the bank directly on instructions to the bank. 6. Amount payable towards the dishonour of a bill discounted. 7. Cheques dishonoured by the issuer. 3, 4, 5, 6, 7 will be recorded when the information relating to the same is received from the bank.

Standing Instruction
A standing instruction is one that is valid till the next instruction is given. We come across this term generally in banking where a standing instruction is an instruction that the customer gives to the bank, to do something on his/her/its behalf. The act that the bank does has its affect on the customers bank account. The standing instruction may be either for receipt or payment of amounts. The bank may be instructed to make payments on behalf of the customer periodically like say payment for insurance premium, interest on loans, taxes etc. The bank may also be authorised to receive amounts on behalf of the customer like instructing the bank to credit the interest on fixed depostis in its bank account, collect interest on securities periodically etc. The bank may charge for providing these services. What is important is that the instruction given by the customer to the bank is valid (it stands) till the customer gives another instruction to the contrary. Recording in Bank Books (Pass Book) We assume that the cheques received by the organisation have been deposited into the bank account and the cheques issued to outsiders have been presented for payment to the bank. M/S Mazil Enzymes Date Particulars Aug 1st Aug 5th Aug 12th By Deposit (Cash ) To Sam (cheque) By Deposit (Cheque) By Self (Cheque) By Pine Wood Traders (Cheque) To Deposit (Cheque) Cheque Withdrawl Deposit Balance Initial No [Debit] [Credit] 18,000 AS01 5,400 MG41 AS02 5,000 AS03 24,000 TR82 12,000 18,000 12,600 24,600 19,600 4,400 45,600

50,000

Aug 13th Aug 17th Aug 18th Aug 18th

By

Collection

Charges

120

45,480

Debit?? Credit ?? In the accounting books of the bank, the organisation a/c representing M/s Manzil Enzymes is a personal account. Therefore, going by the principles of debit and credit for personal accounts, ("Debit the benefit receiver and Credit the Giver"), the bank debits M/s Manzil Enzymes a/c whenever they withdraw amounts from the bank (Debit the benefit receiver) and credits M/s Manzil Enzymes a/c whenever they deposit any amount in the bank (Credit the benefit giver). In general whenever some amount gets into the customers account, the customer a/c is credited and whenever some amount goes out of the customers account, the customer a/c is debited. The same instances when viewed from the bankers side would result in a reversal of treatment. The

Customer (M/s Manzil Enzymes) a/c being Credited 1. Cash paid into the Bank 2. Cheques received by the organisation towards the amounts it has to receive and deposited in the bank for collection. This is recorded by the bank on the date of collection of the cheque. If the cheque is not collected, no amount is credited to the customers account. 3. Interest due and depostied by the bank to the organisation on the bank account balances. 4. Direct payments by the customers into the bank account. 5. Amounts collected by the bank on behalf of the customer like Dividends on shares, Interest on Investments, Rent on property etc. Some of these may be on a standing instruction. 6. Amount receivable towards a bill receivable honoured on the due date, when it is collected by the bank. 7. Amount receivable on discounting bills by the bank. 3, 4, 5, 6 will be recorded on the date of the transaction i.e. on collection and will be intimated by the bank to the customer.

Customer (M/s Manzil Enzymes) a/c being Debited 1. Cash withdrawn from the Bank 2. Cheques issued by the organisation towards the amounts it has to pay. This will be recorded by the bank on the date on which the customer has presented it for

3. 4.

5. 6. 7.

payment (across the counter if it is a bearer cheque or through a banker if it is an account payee cheque) and payment has been made. Interest and other charges collected by the bank towards the services it provides the organisation like collection of outstation cheques etc. Amounts paid by the bank on behalf of the customer (organisation) like rent, insurance premium, etc. Some of these may be on account of a standing instruction. Amount paid towards clearing a bill payable by a cheque or by the bank directly on instructions to the bank. Amount payable towards the dishonour of a bill discounted. Cheques dishonoured by the issuer. This has no influence on the bank pass book (customers account with the bank) since it has not been recorded when the cheque is deposited for collection.

3, 4, 5, 6, will be recorded on the date of transaction and will be intimated to the customer. Some bank transactions relating to the organistion M/s Manzil Enzymes. 1. Aug 1st :: Paid Cash into bank (new account opened) Rs. 18,000. 2. Aug 5th:: Issued a cheque (No. AS01) to Sam Rs. 5,400 in full settlement of Rs. 5,500 due. 3. Aug 8th :: Received a cheque (No. MG41) for Rs. 12,000 towards sale proceeds and deposited the same into bank. 4. Aug 13th :: Withdrawn for Mr. Rao's personal use by cheque (No. AS02) Rs. 5,000 5. Aug 14th :: Mr. Rao, issued a cheque (No. TR82) for Rs. 50,000 towards additional capital Rs. 50,000. 6. Aug 15th :: Issued a cheque (No. AS03) for Rs. 24,000 towards purchase of Furniture. Recording in M/s Manzil Enzymes Books We assume that the organisation maintains a Triple Column Cash Book (subsidiary book). Dr Cash Book Cr Cash D/A Bank D/R Cash Bank Date Particulars J/F (in Date Particulars J/F (Rs) (in Rs) (Rs) (in Rs) (in Rs) Rs) 1/8 To Cash a/c C 18,000 1/8 By Bank a/c C 18,000 8/8 To Sales a/c 12,000 5/8 By Sam a/c 100 5,400 14/8 To Capital a/c 50,000 13/8 By Drawings a/c 5,000 15/8 By Furniture a/c 24,000 15/8 By Balance c/d 45,600 Total 80,000 Total 80,000 16/8 To Balance b/d 45,600 Recording in Bank Books (Pass Book)

We assume that the cheques received by the organisation have been deposited into the bank account and the cheques issued to outsiders have been presented for payment to the bank. M/S Mazil Enzymes Date Aug 1st Aug 5th Aug 12th Aug 13th Aug 17th Aug 18th Aug 18th Particulars By Deposit (Cash ) To Sam (cheque) By Deposit (Cheque) To Self (Cheque) To Pine Wood Traders (Cheque) By Deposit (Cheque) To Collection Charges Cheque Withdrawl Deposit Balance Initial No [Debit] [Credit] 18,000 AS01 MG41 AS02 AS03 TR82 5,400 12,000 5,000 24,000 50,000 120 18,000 12,600 24,600 19,600 4,400 45,600 45,480

Comparative analysis of recording in both books

Let us analyse (with regard to aspects other than the debit and credit) the recording of the above transactions in both the books. 1. Cash Paid into Bank The transaction results in amount being paid into the bank. This transaction is recorded in M/s Manzil Enzyme books and the Bank books on the same date. Therefore, after the transaction is complete, you can notice that the balance in the Bank a/c (in cash book) and the customer (M/s Manzil Enzymes a/c) in the bank books is the same. However, we should note that the bank a/c (in cash book) shows a debit balance whereas the customer (M/s Manzil Enzymes a/c) in the bank books shows a credit balance. The organisations money is with the bank. For the organisation, the bank is a debtor (and therefore a debit balance) and for the bank the organisation (M/s Manzil Enzymes) is a creditor (and therefore a credit balance). 2. Cheques Issued It is a general practice that, money can be withdrawn from the bank using a withdrawl form, if the withdrawl form is accompanied by the pass book. This is generally done in case of personal accounts. With regard to bank accounts maintained by business organisations, let us

assume that this is not done. Even the cash, the business organisation needs is withdrawn using a cheque. Therefore, we can say that the organisation issues cheques either for withdrawing cash from the bank or to the customers of the business towards the amounts payable to them. Bearer Cheques Cheques which are capable of being presented at the bank by individuals and payable by the bank across the counter are called bearer cheques. Therefore, if an organisation has issued a bearer cheque it is capable of being presented and encashed immediately on the day it is issued. The cheque (No: AS01) issued to Mr. Sam on Aug 5th is paid by the bank on the same date. On the assumption that this is a bearer cheque, it can be identified that it has been presented for payment across the counter on the same day i.e. Aug 5th. The cheque issued for the amount drawn by Mr. Rao for personal purposes is also a similar cheque and as such has been paid by the bank on the same date the cheque has been issued. Account payee Cheques Cheques which are payable only to a bank are account payee cheques. These cheques are typically crossed with parallel lines on the top left edge of the instrument indicating that they are crossed. They are not paid across the counter of the bank. They are to be presented to the bank through the banker of the person/organisation who is mentioned as the payee of the cheque. Therefore, an account payee cheque is handed over to the payees banker (deposited in the bank) for collection. The banker would send this cheque to the relevant bank and collect the amount for the payee who is its customer. When an account payee cheque is issued by an organisation, it would have to be deposited by the recepient in his/her/its bank account and the banker should send it to the organisations bank for collection. Thus the date of actual payment of the cheque by the bank would be further to the date of issue of the cheque by the organisation. This should explain the reason why, the cheque (No: AS03) issued by M/s Manzil Enzmes, on Aug 15th towards the payment for purchase of furniture is paid by the bank on Aug 17th. Validity of a Cheque Stale Cheque A cheque is valid for 6 months from the date of its issue, unless specifically stated otherwise. The cheque which has become invalid on account of becoming out of date is called a stale cheque

Relevant Provisions from the Negotiable Instruments Act, 1881 Hide/Show

Sec 5 "Bill of exchange" : A "bill of exchange" is an instrument : in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument. A promise or order to pay is not "conditional" within the meaning of Sec 5 and Sec 4, by reason of the time for payment of the amount or any instalment thereof being expressed to be on the lapse of a certain period after the occurrence of a specified event which, according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain. The sum payable may be "certain", within the meaning of Sec 5 and Sec 4, although it includes future interest or is payable at an indicated rate of exchange, or is according to the course of exchange, and although the instrument provides that, on default of payment of an instalment, the balance unpaid shall become due. The person to whom it is clear that the direction is given or that payment is to be made may be "certain person", within the meaning of Sec 5 and Sec 4, although he is misnamed or designated by description only. "Cheque" : A "cheque" is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. "Negotiable instrument" : A "negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer. Dishonour of cheque for insufficiency, etc., of funds in the accounts provisio a : the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier.

Sec 6 : Sec 13(1) : Sec 138.

3. Cheques Deposited

As explained above, a bearer cheque can be collected across the counter and a crossed cheque should be presented through the banker for collection. When you deposit a cheque for collection, the banker would not credit (deposit) the customers account with the amount of the cheque. The banker records the cheques sent for collection in a separate book and would credit the customers account only if the cheque has been collected. If the cheque is dishonoured, no credit would be made.

Clearing House Hide/Show

Every district has lead bank. A lead bank is entrusted with the responsibility of coordinating the efforts of all credit institutions (banks and others) in the allotted districts to increase the flow of credit. Generally the bank that has relatively large network of branches within the district, especially the rural areas is appointed the lead banker to the district. Lead banks maintain a clearing houses in all locations within a district, where all the bankers meet once or twice every day to clear the cheques that have been deposited by their customers for collection. The representative of each bank brings along with him/her the cheques which have been deposited by their customers for collection and which have been drawn on other branches of their own bank or on other banks. These cheques are exchanged by the banks and only the net amounts are transferred from one bank to another. Say Bank "A" has cheques drawn on bank "B" with it worth Rs. 2,00,000 and bank "B" at the same time has cheqes drawn on bank "A" worth Rs. 1,80,000. Both bank "A" and bank "B" would meet at the clearing house and exchange the cheques on the first day and a record of all the cheques is made by each. They go back to their branches, check the accounts of the persons/organisations who issued the cheques to ensure that they have sufficient balance to honour the cheques. After ensuring that the cheques can be paid they would get back the next day and make the final settlement. Bank "B" needs to transfer Rs. 20,000 to bank "A" to settle the transaction. The clearing house elimiates the need for bank "A" to raise a fund of Rs. 1,80,000 and bank "B" to raise of fund of Rs. 2,00,000 to make a settlement in this regard.

When an account payee cheque is given to the organisation (received by it), it would have to deposit the same in its bank account and the banker should send it to the relevant bank for collection. Thus the date of actual receipt of the cheque and the date on which the

amount has been credited by the bank in the organisations account in the bank would be different. The date of credit would be further to the date of receipt of the cheque. This should explain the reason why, The cheque (No: MG41) received by M/s Manzil Enzmes, towards sale proceeds on Aug 8th and deposited in the bank is credited by the bank on Aug 12th. o The cheque (No: TR82) received by M/s Manzil Enzmes, towards additional capital contribution of the proprietor on Aug 14th and deposited in the bank is credited by the bank on Aug 18th. 4. Bank Charges The bank would collect charges from the customer from time to time for various reasons. Issue of new cheque book, Postal charges for sending a cheque book, Collection charges for collecting outstation cheques, Commission/Charges for collecting insurance claims, dividends, interest on securities etc., Transfer charges for transfering funds, Incdiental Charges related to some service provided by the bank to the customer, etc. Generally, the bank debits the charges to the customers account and would intimate the customer of the same. The customer would record the information on the day on which it is received. Therefore, it is possible that the date on which the bank has debited these charges and the date on which the customer has recorded the same charges would be different. This should explain the reason why the collection charges debited by the bank on Aug 18th, has not yet been recorded in the cash book. The organisation might not have received the information relating to the charges made by the bank.
o