Commerce Accountancy · General Awareness

Banking and Cash Transactions

990 Questions

This collection covers essential concepts related to banking and cash transactions. It includes questions on outstanding cheques, petty cash, bank reconciliations, and negotiable instruments. These topics are highly relevant for accounting exams and test practical financial knowledge.

Bank reconciliation statementsCheques and noting chargesPetty cash usageNegotiable Instruments ActCash book entriesStamp Duty Act

Banking and Cash Transactions Questions

Multiple choice

Bank B gets a cheque from its customer X (in the name of the payee). The words “pay to Mr. X account no. 3252 0001 0081 3409 Bank A” is starred. It does not bear two parallel lines on its face

  1. the cheque can be collected by Bank B for its customer

  2. the cheque is an uncrossed cheque and its payment can be obtained by Mr. X across the counter from the drawee bank

  3. it is a specially crossed cheque and its payment can be obtained by Bank A only

  4. it is a cheque crossed in favour of two banks. Hence, none of the banks can obtain its payment
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

In a special crossing, the name of a banker with or without the words 'not-negotiable' is written on the cheque. Such a cheque is crossed specially to that banker. The effect of special crossing is that the paying banker will pay the amount of the cheque only through the bank named in the cheque.

Multiple choice

X is issued a cheque of Rs. 32000 payable to B or order. The cheque is misplaced and is found by C. C forges B’s signature and endorses it in favour of D, who presents the cheque for payment from the bank, but it is dishonoured.

  1. D can recover the amount from X, B and C.

  2. D can recover the amount from X and B only.

  3. D can recover the amount from C only.

  4. D cannot recover the amount from C only.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A forged instrument has no existence in the eyes of law. A title which never came into existence cannot be improved even if it passes into the hands of a holder in due course. C forges B’s signature on a promissory note and transfers the same to D who takes it in good faith for value. D gets no title of the note even though he is a holder in due course. However, D can recover the amount from C. 

Multiple choice

A cheque of Rs. 10000 issued by Ram Chander, one of your account holders, in favour of Shivaji is stolen by one Radhey Shyam who forges Shivaji’s signature and endorses it in favour of Ganeshi Lal, who obtains the payment from the bank. In this situation, what would be the bank’s position?

  1. Bank will be liable for the forgery.

  2. Bank will be liable only if the drawer proves that the instrument is forged.

  3. Bank will not be liable if Ganeshi Lal agrees to refund the amount.

  4. Bank will get protection available to it under Section 85(1) NI Act and will not be liable for the payment made.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Section 85 in the Negotiable Instruments Act, 1881 Cheque payable to order states

  1. Where a cheque payable to order purports to be indorsed by or on behalf of the payee, the drawee is discharged by payment in due course.
  2. Where a cheque is originally expressed to be payable to bearer, the drawee is discharged by payment in due course to the bearer thereof, notwithstanding any indorsement whether in full or in blank appearing thereon and notwithstanding that any such indorsement purports to restrict or exclude further negotiation.
Multiple choice

A sum of amount was accepted by the cashier of a bank A. However, the cashier fails to account for the amount submitted. Thus,

  1. only cashier will be liable for that

  2. customer depositing the amount will be liable

  3. bank will be liable

  4. Both (1) and (2)

  5. None of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A bank is bound by the act of negligence of its staff during the course of employment. Thus, where the bank cashier fails to account for the money deposited with him at the counter, the bank would be liable.

Multiple choice

Which of the following is correct about joint deposit account?

  1. When nomination is proposed to be made, it should be made by all of them.

  2. When account is to be closed, it should be done by all even if the account is either or survivor, where specific authority to do so has not been obtained in the account opening form.

  3. Garnishee order will be applicable on this account on pro-rata basis if the orders are received in the name of one of the account holders.

  4. Bank cannot use the right of set-off a loan in the name of one of them.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Issued under Sec. 226(3) of Income Tax Act, 1961 by an Income Tax Officer.

Even though the order is received in a single name, it attaches balance (pro-rata) in any joint account maintained by such person.

Multiple choice

A cheque of Rs. 5000 was issued by X at 3.40 p.m. in favour of Y, who being a very respected customer of the bank, obtained the payment at around 3.50 p.m. after the business hours. X comes at 4.50 p.m. and gives instructions to the bank to stop the payment.

  1. Stop payment instruction cannot be accepted after business hours

  2. Cheque has already been paid, due to which the stop payment cannot be accepted

  3. Bank is liable for the payment made after the business hours

  4. Bank is not liable as the payment has been made before close of the bank, although not in business hours
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Banks are not liable for the transactions done in the working hours, however, in the given case, the transaction was made after working hours and banks are not allowed to do cash related transactions during extended working hours (generally one hour). Thus, in this case bank is liable for the payment made after the business hours.

Multiple choice

If NI act exists, in which of the following circumstances is the bank obliged to pay the cheque drawn by the customer u/s 31?

  1. When the amount differs in words and figures

  2. When there is notice of death of the customer

  3. When an attachment order has been received

  4. When the signatures of the drawer are genuine but differ
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

If the amount undertaken or ordered to be paid is stated differently in figures and in words, the amount stated in words shall be the amount undertaken or ordered to be paid.

Multiple choice

A bank has made payments. In which of the following scenarios will the bank not be protected and can be asked to reverse the debit entry?

  1. Where the drawer has put his signatures in small letters

  2. Where the drawer has put his signatures in capital letters

  3. Where the drawer’s signatures have been put by someone else so cleverly that these resemble the original signatures of the drawer

  4. Where the signatures of one of the drawers are as per record and of the other drawer not as per record but are otherwise genuine
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Where the drawer’s signatures have been put by someone else so cleverly that these resemble the original signatures of the drawer, this is not genuine and the bank can be asked to reverse the debit entry.

Multiple choice

X is issued a cheque of Rs. 22000 payable to B on order. The cheque is misplaced and found by C. C forges B’s signatures and endorses in favour of D, who obtains payment from the bank.

  1. This is payment in due course and bank will get protection u/s 85 (1) of NI Act.

  2. This is payment in due course and bank gets protection u/s 131 of NI Act.

  3. For this payment on the basis of a forged endorsement, bank is liable.

  4. Bank and C are liable in equal proportion.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Section 85(1) in the Negotiable Instruments Act, 1881 - (1) Where a cheque payable to order purports to be endorsed by or on behalf of the payee, the drawee is discharged by payment in due course. (2) Where a cheque is originally expressed to be payable to bearer, the drawee is discharged by payment in due course to the bearer thereof, notwithstanding any endorsement whether in full or in blank appearing thereon, and notwithstanding that any such endorsement purports to restrict or exclude further negotiation.

Multiple choice

Amount is immediately recovered from the card holder online for the amount of card used, in case of

  1. a debit card

  2. a post-paid card

  3. a credit card

  4. All of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A debit card (also known as a bank card or check card) is a plastic payment card that can be used instead of cash when making purchases. Amount is immediately recovered from the card holder online for the amount of card used, in case of a debit card which is opposite to a credit card facility.

Multiple choice

Bank’s obligation to pay the cheque drawn by the customer u/s 31 of NI Act exists in which of the following circumstances?

  1. When the cheque is presented by the drawer after business hours

  2. When the cheque is reported to be lost and confirmation from drawer is still awaited

  3. When garnishee order has been received cheque through clearing is debited but clearing returning time has not lapsed

  4. When the cheque clearing time has not lapsed and the amount of funds in the account is sufficient.

Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Section 31 Liability of drawee of cheque — The drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment of such cheque must pay the cheque when duly required to do so, and, in default of such payment, must compensate the drawer for any loss or damage caused by such default. 

Multiple choice

Mr. P, a student is working on part-time basis for a charitable trust. The trust makes payment for the part-time work and also makes payment of some stipend to help him to complete his studies. The payments are made to him by way of two separate cheques.

  1. On the cheque for work payment, he is holder in due course and for the cheque for stipend, he is holder.

  2. On the cheque for work payment, he is holder and for the cheque for stipend, he is holder in due course.

  3. On the both the cheques, he is holder in due course.

  4. On the both the cheques, he is holder.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Holder in due course means a person who must have the possession of the instrument. This is the basic difference between the Holder and Holder in Due Course. Holder in Due Course must obtain the instrument in Good Faith. If the instrument bears not-negotiable crossing, then no person can be a holder in due course. If the instrument bears A/C payee crossing and restricted endorsement, then no person can be a holder in due course. Forgery / theft / deceit do not convey any title. 

Multiple choice

Your customer issues a cheque for Rs. 10000 in discharge of his liability towords Mr. Shayam Prasad on order, who endorses the same in favour of Mr. Sita Ram in blank. This cheque

  1. cannot be endorsed further as the blank endorsement restricts further negotiation

  2. can be negotiated by Mr. Sita Ram without endorsement by him and by mere delivery

  3. can be negotiated further by Mr. Sita Ram with full endorsement by him followed by delivery

  4. can be endorsed by him in blank only

  5. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Correct Answer: can be negotiated by Mr. Sita Ram without endorsement by him and by mere delivery

Multiple choice

A customer of your branch, Sham, deposits a cheque, which he steals from another person named Sham. Your branch collects this cheque (on which the customer is having a defective title) without being aware about the defect.

  1. Collecting bank is negligent.

  2. Collecting bank will get protection if it has complied the requirement u/s 131 of Negotiable Instruments Act, 1881.

  3. Collecting bank is responsible for conversion.

  4. Collecting bank is negligent but will get protection.

  5. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Section 131 - Non-liability of banker receiving payment of cheque — A banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally or specially to himself shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason only of having received such payment.