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 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

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. 

Multiple choice

Which of the following conditions should be fulfilled for a bank to get protection against conversion of a cheque?

(a) The collection should be for a customer (b) The collection should be of a crossed cheque, crossed before falling into the hands of the collecting bank (c) The collection should be in good faith (d) The collection should be without negligence

  1. Only (a) and (d)

  2. Only (a) and (c)

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

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

The collection should be for 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. However, (b) is incorrect.

Multiple choice

A bank is under obligation to make payment of cheque issued by its customer under Negotiable Instruments Act, 1881. Which of the following conditions is incorrect regarding the payment of cheque?

  1. The parties must be certain.

  2. The funds must be properly available for payment of the said cheque.

  3. The signatures of the customer should be as per the records of the bank.

  4. Cheque should be drawn in one ink, one handwriting and one script
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Negotiable Instruments Act states that a cheque should have the following characteristics: (1) It must be in writing (2) It must contain an unconditional order to pay money only and not merely a request (3) It must be signed by the drawer (4) The parties must be certain (5) The sum payable must also be certain (6) It must comply with other formalities e.g. stamps, date etc Thus, option 4 is the correct answer.

Multiple choice

Which of the following is a correct statement?

  1. Protection available to a bank for conversion is as per Section 10 of NI Act

  2. Protection against conversion for demand draft is as per Section 131 of NI Act

  3. Bank gets protection for conversion as per Section 131 in case of cheque and Section 131-A for demand draft, as per Banking Regulation Act

  4. Conversion means unauthorised interference in property of a third party
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Section 10 in the Negotiable Instruments Act, 1881 concerns “Payment in due course”.
Section 131-A in the Negotiable Instruments Act, 1881 is for non-liability of banker receiving payment of cheque. Thus, option 4 is the correct answer (conversion means unauthorised interference in property of a third party).

Multiple choice

Which of the following is incorrect in the context of letter of credit?

  1. The party on whose request LC is issued is called beneficiary.

  2. The bank that makes the payment to the beneficiary against documents and claims payment from issuing bank is called negotiating bank.

  3. Bank that has the final liability on LC, if documents are received in order, is called the issuing bank.

  4. The bank with which credit is available is called the nominated bank.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Beneficiary is the party who is to receive the benefit (payment) of the LC. The consignee of an LC and the beneficiary may not be the same. The credit is issued in the beneficiary's favour.

Multiple choice

A bank guarantee has been issued by the bank in lieu of the customer being required to deposit cash security. Such a guarantee is called

  1. cash guarantee

  2. financial guarantee

  3. performance guarantee

  4. deferred payment guarantee
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Financial guarantee is the type of bank guarantee which is issued by a bank and furnished by a bank’s customer in lieu of earnest money or the security to be deposited with the beneficiary of the bank guarantee for the performance of a contract. These guarantees are given in lieu of purely monetary obligation (the obligation of contractor to make earnest money deposit/guarantees to give to sale-tax department etc).

Multiple choice

Where forged notes or counterfeit currency has been used as genuine, record of such transactions is required to be maintained if the amount of such transaction is

  1. Rs. 50000 or above

  2. Rs. 1 lac or above

  3. Rs. 10 lac or above

  4. irrespective of the amount
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Records should be maintained for all cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine and where any forgery of a valuable security has taken place.

Multiple choice

Which of the following is incorrect regarding banks that are required to maintain records under prevention of Money Laundering Act, 2002?

  1. Nature of the transaction

  2. Amount of the transaction and the currency

  3. Date of transaction and the parties to the transaction

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

The guidelines for the nature of records to be maintained by a bank under Prevention of Money Laundering Act, 2002 are issued by RBI and SEBI from time to time. Under that, all the given options/records should be present. Thus, option 4 is correct.