Banking and Cash Transactions

Bearer, Order, and Crossed cheques are standard legal classifications under the Negotiable Instruments Act. A 'blank cheque' is a colloquial term for a signed cheque without an amount, not a formal legal category of cheque.

True. A bank's advice is like a notice that the bank gives to the customer when any transaction takes place. Hence, bank always issues an advice while money gets deducted from customers account and also when money is deposited in the customer account.

A Bank statement is a copy of bank column of the cash book. The businesses maintain cashbook with two column which has one cash column and other bank column. The bank column records all the transactions that take place in the bank account.  

A Pass Book is a copy of customer's account issued by the bank. The bank maintains the customer accounts in its books of accounts which are further shown in the pass book. Thus passbook is a record of all the transactions that take place in a customers account.

The difference between the balances of cash book and pass book is because of the timing difference, errors in cash book committed by account holder, error is book committed by bank. Some of the reasons can be cheques issues and not presented in the bank, interest allowed by the bank, direct payment through bank, cheques dishonoured, etc. 

A Bank Reconciliation Statement is prepared to identify and explain the differences between the bank balance shown in the cash book and the balance shown in the bank passbook.

When a direct payment is made to the third party it is automatically deducted/debited from the bank account. It is entered in the cash book when a cash receipt is received or when the passbook is updated.

A credit balance in cash book is a overdraft as per pass book. The bank maintains the customer account which is further printed in the passbook. The passbook is made from the view point of the bank hence customer depositing money is a liability to the bank and is credited. Therefore when the balance is unfavourable it shows a debit balance because they will receive money from the customer. The debits and credit of pass book and cash book are opposite.

When a direct payment is received from the third party it is automatically added/credited to the bank account. It is entered in the cash book when the passbook is updated or when it is due.

Payment received by the account holder through a cheque is entered in the passbook only when its cleared by the bank. The passbook will get credited only after the cheque is cleared by the bank. Uncollected cheques are the cheques which are deposited in the bank but not cleared by the bank or not credited in the bank account. Hence the cheque will appear in the passbook only after its been collected or cleared.

An amended cash book is where all the adjustments are done, the starting point being the balance as per cash book. All the errors in the cash book are adjusted in the same. Hence, an entry not appearing in the cash book is to adjusted in an amended cash book.

A Bank Pass Book is a statement that shows the transactions that occur is a customer's account. The bank maintains customer's account which are further copied/transferred to the Bank Pass Book. Pass Book is maintained so that the customer can refer the transactions that have occurred over a period of time.

True. Interest on overdraft is charged by the bank and paid by the customer. So, it reduces the balance in the pass book which is prepared by the bank as a copy of customer's account in the books of the bank.

The journal entry in case of interest on bank overdraft in the books of account holder is as follows :

False. Bank charges debited by the bank in the pass book reduces the balance in the pass book as compared to cash book. This is because the business has not yet recorded this transaction. This difference arises only because of the difference in recording of the transaction.