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 book keeping and accountancy bills of exchange renewal of the bill retirement and renewal of a bill accounting treatment of bill transaction

When bill is retired , What will be the entry in the books of Drawee ?

  1. Bill payable A/c Dr

    To Cash A/c

    To Discount A/c

  2. Bill payable A/c Dr

    To Cash A/c

    To Rebate A/c

  3. No Entry

  4. None of the Above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When a bill is retired, the drawee pays the cash and receives a rebate (discount). The entry is: Bills Payable Dr, To Cash, To Rebate.

Multiple choice book keeping and accountancy bills of exchange renewal of the bill retirement and renewal of a bill accounting treatment of bill transaction

__________________ means cancellation of old bill and drawing a new bill.

  1. Dishonour of bill

  2. Honouring of bill

  3. Retirement of bill

  4. Renewal of bill
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When on or before due date drawee finds himself unable to make the payment of the bill, he may request the drawer to cancel the old bill and accept a new one, this process is called renewal of the bill.

Multiple choice book keeping and accountancy bills of exchange renewal of the bill retirement and renewal of a bill accounting treatment of bill transaction

Only ________ can retire the bill before due date.

  1. drawer

  2. bank

  3. drawee

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

Retirement of a bill occurs when the drawee pays the bill amount to the drawer before the due date. The drawee is the party liable to pay, so they are the one who initiates the early settlement.

Multiple choice book keeping and accountancy bills of exchange renewal of the bill retirement and renewal of a bill accounting treatment of bill transaction

When part payment is received drawer debits ________ account.

  1. drawee

  2. cash

  3. bill receivable

  4. none
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When a drawee makes a part payment, the drawer receives cash. According to the rules of accounting, the drawer debits the cash account because cash is an asset coming into the business.

Multiple choice book keeping and accountancy bills of exchange renewal of the bill retirement and renewal of a bill accounting treatment of bill transaction

When a bill is discharged, the receiver debits ___________.

  1. creditor's A/c

  2. cash A/c

  3. bills payable A/c

  4. drawer's A/c
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The bill is discharged by the receiver ( drawee) , means that the he has paid his liability towards the drawer which was outstanding in his books. Now we know that a liability account would show a credit balance so, if we were to clear the same we would have to debit it. The entry for the same in his books of accounts would be as follows :

Bills payable A/c. -----------------Dr.
To Cash/Bank A/c.

Multiple choice book keeping and accountancy bills of exchange renewal of the bill retirement and renewal of a bill accounting treatment of bill transaction

No cancellation entry is required when a bill is renewed.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In this case, a new bill will be for the remaining amount. Interest will then be charged on the remaining amount for the extended period of credit.

First main entry is made to cancel the old bill.

Multiple choice book keeping and accountancy bills of exchange renewal of the bill retirement and renewal of a bill accounting treatment of bill transaction

At the time of retirement of a bill, the receiver debits ___________.

  1. bills payable account

  2. discount account

  3. bills receivable account

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

When a bill is retired, the drawee (the person who owes the money) pays the bill. They debit their liability, which is the bills payable account, to close it out.

Multiple choice accountancy accounting for bills of exchange transaction nature, advantages and types of cheques meaning, definition and characteristics of promissory note promissory note

A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

According to Section 6 of the Negotiable Instruments Act, 1881, a cheque is defined as a bill of exchange drawn on a specified banker and payable on demand.

Multiple choice accountancy accounting for bills of exchange transaction nature, advantages and types of cheques meaning, definition and characteristics of promissory note promissory note

Taking in care of Negotiable Instrument Act. $1881$, which of the following is the essential for a cheque?

  1. It should contain conditional order

  2. It must not signed by drawer

  3. Cheque is not payable on demand

  4. It is payable to specified person
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A cheque must be an unconditional order to pay a certain sum of money to a specified person or the bearer, signed by the drawer.

Multiple choice accountancy accounting for bills of exchange transaction nature, advantages and types of cheques meaning, definition and characteristics of promissory note promissory note

In case of a bill of exchange, the drawee is entitled to have three days for making payment of the bill but in case of a _____________ is always payable on demand.

  1. promissory note

  2. cheque

  3. bills of exchange

  4. bank draft
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A cheque is always payable on demand. Therefore, no days of grace are allowed to the banker for payment. In case of a bill of exchange, the drawee is entitled to have three days for making payment of the bill and these extra days are known as grace days.

Multiple choice accountancy accounting for bills of exchange transaction nature, advantages and types of cheques meaning, definition and characteristics of promissory note promissory note

________  of the Negotiable Instrument Act, 1881 defines, ''A cheque is a bill of exchange drawn on a specified banker and not expressed to be payble otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.''

  1. Section 8

  2. Section 6

  3. Section 5

  4. Section 10
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

According to Section 6, of the Negotiable Instruments Act, 1881, the term cheque is defined as “a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.”

Multiple choice accountancy accounting for bills of exchange transaction nature, advantages and types of cheques meaning, definition and characteristics of promissory note promissory note

The Negotiable Instruments Act, 1881 has recognised an _____________ also as a cheque.

  1. virtual cheque

  2. accommodation bill

  3. bearer cheque

  4. electronic cheque
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The Negotiable Instruments (Amendment) Act, 2002, introduced the concept of an electronic cheque, which is a cheque drawn in electronic form.

Multiple choice accountancy accounting for bills of exchange transaction nature, advantages and types of cheques meaning, definition and characteristics of promissory note promissory note

 A cheque does not include the electronic image of a truncated cheque and a cheque in the electronic form.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Section 6 of the Negotiable Instruments Act explicitly includes electronic images of truncated cheques and cheques in electronic form within the definition of a cheque.