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

Your branch has received a garnishee order in the name of your customer having saving bank account with the following transactions. Which among these is not a subject matter of the garnishee order?

  1. An advice ready for dispatch to another branch after debit to the account in payment of cheque

  2. An advice received for a cheque which was sent in collection from another branch but not credited to the account so far

  3. A cheque in clearing, the amount of which has been credited to the account

  4. An amount of Rs. 4000 relating to his wife’s account credited by mi<font size="2">s</font>take to the account of the customer
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The garnishee order does not apply to the cheques, drafts, bills etc, which have been sent for collection by customer and have been credited. But if the amount of the uncleared cheque is credited, then the garnishee order is applicable. 

Multiple choice

Mr. Ashok Kumar issues a power of attorney in favour of Mr. Amit Kumar in July 31, 2012 and dies on December 03, 2012. Your branch receives (on Dec 26, 2012) through clearing house, two cheques, one of which is signed by Mr. Ashok Kumar, on Dec 12, 2012. Which cheque will be paid?

  1. Both the cheques will be paid, if there is balance in the account.

  2. Both the cheques will be returned.

  3. Cheques signed by Mr. Ashok Kumar will be paid as the cheques were signed before death.

  4. Cheques signed by Mr. Amit Kumar will be paid, as he is alive.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

 Both the cheques will be returned because Mr. Ashok Kumar died on December 03, 2012 and the cheque is signed on December 12, 2012. Therefore, it can be a fraud case.

Multiple choice

X received a bearer cheque from Y for valuable consideration and in good faith. Actually, Y had stolen this cheque from Z. X would get title of

  1. a holder only

  2. a holder for value

  3. a holder in due course

  4. an endorsee
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Holder in due course - a person who has received a negotiable instrument in good faith and without notice that it is overdue, that there is any prior claim, or that there is a defect in the title of the person who negotiated it. Thus, X would get the title of holder in due course.

Multiple choice

Cheque truncation can be done by

(a) using MICR data (b) using imaging processing (c) using advanced processing technology

  1. (a) and (b)

  2. (b) and (c)

  3. (a) and (c)

  4. (a) to (c) all
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Cheque Truncation System (CTS) or Image-based Clearing System (ICS), in India, is a project undertaken by the Reserve Bank of India (RBI) in 2008, for faster clearing of cheques. CTS is based on a cheque truncation or online image-based cheque clearing system where cheque images and magnetic ink character recognition (MICR) data are captured at the collecting bank branch and transmitted electronically.

Multiple choice

If the holder of a cheque removes the crossing in such a way so that the same is not easily detectable (with naked eye) and gets the payment after presenting it at counter of the drawee bank, the latter will get protection u/s … of NI Act.

  1. 89

  2. 118

  3. 131

  4. 87
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Section 89 in The Negotiable Instruments Act, 1881: Where a promissory note, bill of exchange or cheque has been materially altered but does not appear to have been so altered, or where a cheque is presented for payment which does not at the time of presentation appear to be crossed or to have had a crossing which has been obliterated, payment thereof by a person or banker liable to pay and paying the same according to the apparent tenor thereof at the time of payment and otherwise in due course, shall discharge such person or banker from all liability thereon; and such payment shall not be questioned by reason of the instrument having been altered, or the cheque crossed.

Multiple choice

A saving bank customer of Modern Bank issues a cheque of Rs. 1500 in favour of M/s Swastic Enterprises on order. The cheque is paid by the bank on presentation through clearing with endorsement from the payee as ‘Svastika Enterprises’. The endorsement is also confirmed by the collecting bank. The drawer claims that the payment has not been made in due course and claims refund of the amount.

  1. This is a payment on the guarantee by the collecting bank due to which paying bank’s position is safe.

  2. The cheque is of a small amount, so the bank should refund the money.

  3. If the customer is valuable, the customer’s request should be accepted.

  4. Endorsement is irregular due to which the paying bank is not protected under the provisions of Section 85 of NI Act.

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

Section 85 in The Negotiable Instruments Act, 1881: 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. 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

Bank can be held liable for conversion in which of the following circumstances?

  1. Payment of a bearer cheque to a person other than payee without endorsement by the payee

  2. Collection of a cheque belonging to one X for another X, who opened the account with proper introduction.

  3. Collection of a cheque of large amount for a customer having poor financial background, without enquiring the source of the cheque.

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

Banks were advised to follow certain customer identification procedure for opening of accounts and monitoring transactions of a suspicious nature for the purpose of reporting it to appropriate authority. Thus, while collecting cheques of large amount, it is mandatory for the banks to keep a check on the transactions (including history of the transactions).

Multiple choice

On the request of its customer, a Commercial Bank’s branch transferred the account to its another branch. A cheque was presented on the first (transferor) branch which it returned with the reason ‘refer to drawer’. Customer claimed damages from the bank.

  1. Bank is liable to the customer for not having returned the cheques with a proper reason.

  2. Bank is liable to the customer for having returned the cheques if the balance in the other branch was adequate, where the account was transferred.

  3. Bank is not liable to the customer as the cheque could not have been paid otherwise.

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

The answer 'refer to drawer' often adopted by bankers would mean anything from shortage of time, to death or insolvency of the drawer and could also include insufficiency of funds. It could include serving of a garnishee order and could be milder form of refusal than 'no funds' or 'no arrangements'. At times it may not really reflect the financial position of the drawer and could only mean 'we are not paying, just ask the drawer why'. Thus, bank is liable to the customer for not having returned the cheques with a proper reason.

Multiple choice

A cheque is a dated January 12, 2016 and presented for payment by the payee on April 13, 2016. The paying bank returns the cheque stating that it is stale. Which among the following is not correct in this connection?

  1. The term ‘stale’ is defined in NI Act Section 138.

  2. The cheque becomes stale after 3 months from date of its issue.

  3. The term ‘stale’ is used as a matter of practice.

  4. A stale cheque can be revalidated with fresh validity up to 3 months.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Section 138 of NI Act deals with dishonour of cheque due to insufficiency of funds in the account.

Multiple choice

Bank B makes payment of the following cheques. For which of these will the bank not get protection?

  1. A cheque with one endorsement as forged endorsement

  2. A bearer cheque bearing an endorsement in favour of X while payment is received by Y without endorsement from X

  3. A cheque the amount of which has been filled by the payee and was left blank by the drawer

  4. A cheque having amount in words as Rupees five thousand while amount in figures was left blank
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

If the amount is written in words only and NOT in figures, then NO payment will be made because it would be inchoate. This means that a person writes a check with the following: Figures: _________ (Left Blank) Words: Rupees Five Thousand Only No payment would be made (Section 20 NI Act)

Multiple choice

Which among the following is a false statement?

  1. Signature of the payee or endorsee for negotiation of the cheque is called endorsement.

  2. Endorsement can be only on the note itself.

  3. A cheque can be endorsed for any number of times

  4. Endorsement is possible on bill of exchange, promissory note and cheque.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The endorsements of the note need not be on the note itself. A note is also endorsed if a separate sheet of paper containing the signature and any words of endorsement is attached to the note, called an allonge.

Multiple choice

Which of the following instruments has three parties, i.e. drawer, payee and drawee, to the instrument?

  1. Bill of exchange and cheque

  2. Bill of exchange and promissory note

  3. Promissory note and cheque

  4. Promissory note and demand draft
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

‘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. A cheque is a type of bill of exchange, used for the purpose of making payment to any person.

There are three parties involved in the case: Drawer: The maker or issuer of the cheque. Drawee: The bank which makes payment of the cheque. Payee: The person who gets the payment of the cheque or whose name is mentioned on the cheque.

Multiple choice

Spend now and pay later stands for

  1. ATM card

  2. credit card

  3. debit card

  4. electronic purse
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A credit card is a payment card issued to users (cardholders) as a method of payment. It allows the cardholder to pay for goods and services based on the holder's promise to pay for them. Thus, a user can spend at the moment and can pay later for the same.