Commerce Accountancy · General Awareness

Banking and Cash Transactions

1,011 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

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.

Multiple choice

Which of the following pairs does not match with regard to protection to the bank?

  1. Section 10 - when payment is made in due course

  2. Section 131 - when payment is made on the basis of regular endorsement

  3. Section 89 - when payment of a materially altered cheque is made but alteration is not visible to naked eye

  4. Section 85(2) - when payment of bearer cheque is made without taking into account the endorsement
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Section 131 - deals with the non-liability of banker receiving payment of cheque

Multiple choice

A bill of exchange is different from a cheque in which of the following contexts?

(a) Cheque is payable on demand but BoE can be payable on demand or in future. (b) Cheque is drawn on a specific bank and a bill of exchange can be drawn on a bank or some other person also. (c) BoE can be endorsed and crossed but a cheque cannot. (d) When cheque is dishonoured, notice of dishonor need not be sent to drawer but in case of BoE, it is required to make him liable.

  1. (a) to (d) all

  2. (a), (b) and (c)

  3. (a), (c) and (d)

  4. (a), (b) and (d)

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

Correct Answer: a, b and d are correct ‘Cheque’ is an instrument which contains an unconditional order, drawn on a banker, directing to pay a certain sum of money to the person whose name is specified in the instrument. ‘Bill of Exchange’ is a document containing an unconditional order, directing a person to pay a certain amount to a specified person. These two terms sound the same, which becomes the cause of confusion for many people. A cheque can be endorsed or crossed. 

Multiple choice

Which of the following is not a feature of a not-negotiable crossed cheque?

  1. It is defined as per Section 130 of NI Act.

  2. Its payee is holder only.

  3. It can be endorsed in favour of other persons, getting equal rights.

  4. None of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

"Not-negotiable" means that you cannot endorse a cheque in favour of someone else. This is not correct, however, as the cheque can be endorsed to someone else but all subsequent parties accepting the cheque cannot get better rights than the person that they received it from.

Multiple choice

Where a bank is prohibited to accept the deposit despite prohibition, if the bank deposits, what is the punishment?

  1. Fine to extent of 20% of the amount of deposit so accepted

  2. Fine to extent of 50% of the amount of deposit so accepted

  3. Fine to extent of 100% of the amount of deposit so accepted

  4. Fine to extent of 200% of the amount of deposit so accepted

  5. Deposit has to be returned back
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

If the bank deposits the amount which is prohibited, there is fine to extent of 200% of the amount of deposit so accepted.

Multiple choice

When a cheque is collected by a bank for its customer A, who withdraws the money after collection, and later on, real A establishes that the cheque belonged to him (real A), it is called

  1. foreclosure

  2. subrogation

  3. force majure

  4. conversion
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Conversion is when for example, someone sells property that does not belong to them without the owner's consent. In this context, the cheque is treated as property, and its value is the amount of the cheque. Since most misappropriated cheques will have been handled by a collecting bank and a paying bank, both become possible defendants in an action for conversion.

Multiple choice

Which of the following is/are not the feature(s) of an ‘account payee crossing’?

  1. It is defined as per Section 130 of NI Act.

  2. Its payee is holder only.

  3. It can be endorsed and transferred any number of times.

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

The significance of crossing is that the payment of the instrument can only be made through a Banker (Account Holder). When it is a crossed instrument, it gives direction to the paying Banker (Bank) to pay the money to a Banker. Thus, the holder of such an instrument must deposit the same into his or the other person’s Bank Account for collection. An instrument is crossed in order to provide a safeguard against theft of fraud. Thus, all the given options are not true in case of ‘account payee crossing’. 

Multiple choice

B was having an account with Universal Bank. The bank got confirmation from B for the balance in the account. Later on, B brought to bank’s notice a fact that two forged cheques have been debited to his account. The bank, however, claimed that the customer has already confirmed the balance.

  1. The bank is not liable as the customer has already confirmed the balance.

  2. Though the customer is right, but after confirming the balance, he cannot get the entry reversed.

  3. The bank is liable for the forged cheques and it has to reverse the entry.

  4. The bank and the customers have to share the loss on pro-rata basis.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

If a bank pays out on the basis of a forged signature on a cheque, it does so without its customer’s mandate and is generally required to make good any loss that the payment causes the customer. It does not matter how good the forgery is; a skilful forgery is no more valid than a crude one. That may seem unfair to a banking firm that acts in good faith on the basis of a skilful forgery – but if it were otherwise, a person could be bound by anyone who was able to make a good copy of their signature. Thus, the bank is liable for the forged cheques and it has to reverse the entry. 

Multiple choice

Payment of which of the following cheques can be treated as a payment in due course, if otherwise in order?

  1. A mutilated cheque

  2. Payment of a cheque crossed as ‘account payee’ and endorsed by its payee Mr. X in favour of Y

  3. Payment of a bearer cheque to Mr. X through it is drawn in favour of Mr. Y and there is endorsement by Y in favour of Mr. Z

  4. Payment of a cheque stopped by a partner who is not authorized to operate the account of the partnership firm
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

“Payment in due course” means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned. Thus, payment of a bearer cheque to Mr. X through it is drawn in favour of Mr. Y and the endorsement by Y in favour of Mr. Z comes under “Payment in due course”.