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 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.

Multiple choice

For the purpose of application of Bankers’ Book Evidence Act, the bankers’ books include

(a) records kept as back-up (b) records available as disaster recovery (c) records on micro film (d) records in physical form

  1. Only (d)

  2. Only (c) and (d)

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

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

“Bankers' books” include ledgers, day-books, cash-books, account-books and all other records used in the ordinary business of the bank, whether these records are kept in written form or stored in a micro film, magnetic tape or in any other form of mechanical or electronic data retrieval mechanism, either onsite or at any offsite location including a back-up or disaster recovery site or both. Thus, all the statements are correct.

Multiple choice

Service tax is to be deposited by banks within

  1. 5 days of close of the month

  2. 7 days of close of the month

  3. 5 days of close of the month in case of electronic deposit and 6 days in case of manual deposit

  4. 6 days of close of the month in case of electronic deposit and 5 days in case of manual deposit
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The due date for payment of service tax is 6th day of the month following the relevant month/quarter, if electronically paid and in other cases, 5th day of the month following the relevant month/quarter. It is provided under section 75 of the Finance Act, 1994 that in case of delayed payments (after due date), the assessee is required to pay simple interest at the rate prescribed.

Multiple choice

A popular bank makes payment to Y, of a bearer crossed cheque across the counter. The cheque is drawn in favour of X. In this case,

  1. the bank is liable to the drawer for a wrongful payment

  2. being a bearer cheque, the bank can make cash payment to anyone

  3. the bank is liable to X, the true owner

  4. the bank is liable both to the drawer and the true owner
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Bank is always liable to the person whomsoever the check is favourable to, not the bearer. Thus, in the given case, the bank is liable to X. 

Multiple choice

X appointed Y as his agent to operate his account and route business transactions through Y’s personal account also. Y misappropriated the proceeds of a cheque in the name of X but deposited them in his personal account. X sends notice to the bank for negligence and conversion.

  1. The bank is liable for the conversion as Y has done something that bank should not have apparently.

  2. The bank is liable since it is a case of conversion.

  3. The bank is not liable because X had given specific authority to Y to use his personal account also.

  4. The bank is not liable because for agent’s action, the principal is liable.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The bank is not liable because X had given specific authority to Y to use his personal account also.

Multiple choice

To enable the beneficiary to rely on the authenticity and genuineness of the LC, the letter of credit is received by the beneficiary

  1. through advising bank

  2. directly from the issuing bank

  3. from negotiating bank, which is to make payment also

  4. through confirming bank to make sure that payment would be definitely received
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Advising bank advises the letter of credit to the exporter at the request of the issuing bank. Advising banks act upon issuing bank's request advising the letters of credit to the beneficiaries. Once the letter of credit is issued, it must be conveyed to the importer.

Multiple choice

When a bill is discounted through bank, which of the following conditions is correct?

  1. The bank will not get the title of holder in due course.

  2. The bank will become the payee.

  3. The bank will receive the amount after deducting the interest charged by the bank at the time of discounting the bill.

  4. The bank will become the drawer.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The bank will get the title of holder in due course, the bank will become the payee and not the drawer. The bank will receive the full payment, no amount as interest will be deducted. 

Multiple choice

Under provisions of Right to Information Act, the person requesting for information has to pay the prescribed fee, which can be in the form of all of the following, except

  1. cash against proper receipt

  2. cheque from the account of the information seeker

  3. demand draft or bankers’ cheque

  4. Indian postal order
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The person requesting for information has to pay the prescribed fee, which cannot be in the form of cheque, be it from the account of the information seeker.