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

Which of the following is not correct in the context of dishonor of cheque for insufficiency of funds?

  1. To file the suit, the holder is required to give a notice to drawer within 30 days of receipt of information about dishonor.

  2. To file the suit, the holder is to give notice to drawer to make payment within 30 days of receipt of notice by the drawer.

  3. Court can impose fine up to double the amount of cheque on the drawer.

  4. The drawer can be imprisoned up to 2 years, if found guilty.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The notice should mention that the cheque amount has to be paid to the payee within 15 days from the date of receipt of the notice by the drawer. Thus, option 2 is the correct answer. 

Multiple choice

For the collection of which of the following will the collecting bank get protection?

  1. If the bank collected such crossed cheque only for his customer as an agent and not as a holder for value

  2. If the crossed cheque is collected and the proceed is credited to another account

  3. Crediting the proceed of a cheque to the personal account of director, partners or any employee when it is payable to the company

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

Correct Answer: All of the above Under section 131 of Negotiable Instrument Act, the collecting bank will get protection under all the given conditions.

Multiple choice

A demand draft is purchased by P. After 5 days, P comes to the bank and requests the bank to stop the payment, as the DD is reported to have been lost in transit.

  1. The issuing branch will immediately instruct the drawee branch to stop the payment of DD.

  2. The issuing branch will first verify the non-payment and then give the instructions for stopping the payment.

  3. The payment of DD cannot be stopped and hence, the request of P will not be entertained.

  4. If it is a common request from payee and drawee branchs, it will be done.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The payment CANNOT be stopped unless there is an order by a competent court. So, when a draft reaches a payee, the relationship between the purchaser and bank comes to an end. Therefore, the request of P will not be entertained.

Multiple choice

Z is issued 3 cheques on December 12, 2015. He dated the 1st cheque as December 02, 2015, the 2nd cheque as December 12, 2015 and the 3rd cheque as December 22, 2015. These are presented for payment on December 18, 2015, the but account was opened on December 05, 2015.

  1. The 1st cheque is post dated and the 3rd cheque is ante-dated. These cannot be paid, but the 2nd cheque can be paid.

  2. The 1st cheque is ante-dated and the 3rd cheque is post dated. These cannot be paid, but the 2nd cheque can be paid.

  3. The 1st cheque is ante-dated and can be paid, while the 3rd cheque is post-dated and cannot be paid. 2nd cheque can also be paid.

  4. The 1st cheque is post-dated and cannot be paid, but the 2nd cheque can be paid.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Types of Cheque: i. Ante-dated cheque: A cheque bearing a date prior to actual date of signing the cheque or opening of an account is called an ante-dated cheque which is valid and can be paid till it becomes stale. For example, a heque dated January 9, 2013 for an account opened on January 25, 2013 can be paid. ii. Stale cheque: If the validity of the cheque has already expired, it is called stale cheque and cannot be paid. The normal maximum validity of a cheque is 3 months. Earlier, it was 6 months. If a cheque is presented after 3 months, it will be returned. iii. Post-dated cheque: The cheque which bears a date subsequent to the date on which it is drawn is called post-dated cheque. For example, a cheque drawn on January 10, 2013 bears the date of January 12, 2013. If a bank notices a post-dated cheque presented for payment before the date appearing thereon, the cheque will be returned marked post-dated or the bank will hold onto the cheque until it is able to be cashed in.

Multiple choice

In case of bounce/dishonor of cheque on account of insufficiency of funds, the drawer is punishable by

  1. fine up to double the amount of cheque and imprisonment up to one year

  2. fine up to equal to the amount of cheque and imprisonment up to one year

  3. fine up to double the amount of cheque and imprisonment up to two years

  4. fine up to equal to the amount of cheque and imprisonment up to two years
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Imprisonment and fine to drawer: The penalty to a drawer can include imprisonment for a period that may extend up to two years and also a fine up to double the amount of the cheque.

Multiple choice

A bank can close the account of the customer

(a) if the account is not being conducted as per terms of the accounts (b) if the customer is keeping balance continuously below the minimum balance (c) and before closure of the account, a notice is sent to the customer (d) the customer is not complying with the KYC guidelines

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

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

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

  4. (b), (c) and (d)
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

According to RBI, "Banks should not take undue advantage of customer difficulty or inattention. Instead of levying penal charges for non-maintenance of minimum balance in ordinary savings bank accounts, banks should limit services available on such accounts to those available to basic savings bank deposit accounts and restore the services when the balances improve to the minimum required level". Thus, (b) is not true and won't result in closing of the account. Other than (b), all the parts are true.

Multiple choice

Bank B is maintaining account of a sports club which is operated by its Secretary and President jointly. The bank receives a notice (on February 10, 2016) of the death of the President on January 31, 2016. Two cheques of Rs. 5000 each dated January 12, 2016 and February 2, 2016 are presented for payment on February 24, 2016. The bank shall

  1. pass both the cheques as these are signed by them in the capacity of an agent

  2. return both the cheques as the death of one of the drawers has taken place

  3. pass the 1st cheque and return the 2nd cheque

  4. pass the 2nd cheque and return the 1st cheque
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The bank shall pass the 1st cheque and return the 2nd cheque as the first cheque was dated before the death of the President (January 31, 2016). However, the other cheque was dated after the death of the President, so it will not be passed.

Multiple choice

A cheque of Rs. 500 issued by Mr. A (a customer of your branch) favouring Mr. X is crossed as not-negotiable. X endorses it in favour of Z who deposits the cheque with your branch. What should be done?

  1. Cheque may be collected for Z, as amount is small.

  2. Cheque cannot be endorsed by Mr. X and hence, endorsement is irregular; it should be collected for Z.

  3. Cheque can be collected for Z as not-negotiable crossing does not restrict further transfer.

  4. Z should be advised to return the cheque to X and should not enter into such risk–prone transactions.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The words 'not-negotiable' can be added to general-crossing as well as special-crossing and a crossing with these words is known as not-negotiable crossing. The effect of such a crossing is that it removes the most important characteristic of a negotiable instrument: The transferee of such a crossed cheque cannot get a better title than that of the transferor (cannot become a holder in due course) and cannot convey a better title to his own transferee, but the instrument remains transferable.

Multiple choice

Directions: Choose the part in which there is an error:

  1. The bank customers

  2. are advised

  3. to not share their account details

  4. with unknown sources
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The error is in part C. When 'not' is used with an infinitive, the standard word order is 'not to' (split infinitive), not 'to not'. The correct form is 'advised not to share' or 'advised to refrain from sharing'.

Multiple choice

Banks are required to deposit the amount of TDS (sale of movable asset), in the govt. account

  1. within one month from date of deduction

  2. within 7 days from date of deduction

  3. within 7 days from close of the month, during which deduction is made

  4. within one month from close of the month, during which deduction is made
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The income tax department has extended the time limit for depositing TDS on sale of property. Such TDS can now be deposited within 30 days from the end of the month in which it was deducted. So, if you have deducted TDS on property on 10th August, 2016, you can deposit it by 30th September. 

Multiple choice

A bank has made payment across the counter, of a cheque issued as a crossed cheque and the holder claims damages from the bank. Under such circumstances, the bank is liable

  1. to the drawer of the cheque

  2. to the true owner of the cheque, i.e. holder

  3. to the drawer and also the payee

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

Bank is always liable to the person whomsoever the cheque is favourable to, not the bearer. Thus, in the given case, the bank is liable to true owner of the cheque. 

Multiple choice

A bank makes payment of two cheques on which, later it is found that the signatures of the drawer are forged. The first account is that of a company and the 2nd account is a joint account in which signatures of one of the account holders are real.

  1. Bank is liable for the first cheque and for half the amount in the 2nd case.

  2. Bank is liable for both the cheques.

  3. Bank is liable for the 1st cheque and not liable for the 2nd cheque.

  4. Bank is not liable for any of the cheque, if payment is in due course.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The National Commission held that the bank couldn't escape responsibility in comparing signatures. Thus, in both the given cases, the bank is liable for both the cheques.

Multiple choice

Bank B has received a notice from Recovery Officer of DRT attaching the balance lying in current account of XYZ Pvt. Ltd.

  1. The bank will ignore the notice as such authority is not vested with Recovery Officer of DRT.

  2. The bank will inform the Recovery Officer that his order cannot be complied with as he has no such authority.

  3. The bank will follow the order as Recovery Officer can issue such order similar to the one given u/s 226 of Income Tax Act.

  4. The bank will follow the order because the recovery of due amount of some other bank is involved.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Section - 226, Income Tax Act, 1961-2014

(3) (i) The 11[Assessing] Officer 12 [or Tax Recovery Officer] may, at any time or from time to time, by notice in writing require any person from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money, for or on account of the assessee to pay to the Assessing Officer or Tax Recovery Officer either forthwith upon the money becoming due or being held or at or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount due by the assessee in respect of arrears or the whole of the money when it is equal to or less than that amount.

(iv) Save as otherwise provided in this sub-section, every person to whom a notice is issued under this sub-section shall be bound to comply with such notice, and, in particular, where any such notice is issued to a post office, banking company or an insurer, it shall not be necessary for any pass book, deposit receipt, policy or any other document to be produced for the purpose of any entry, endorsement or the like being made before payment is made, notwithstanding any rule, practice or requirement to the contrary.