Cash and Banking Transactions

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Overview

A cash transaction refers to any business transaction, which involves immediate payment or receipt of cash. When a transaction is made through the bank, then it is called a ‘banking transaction’. This note has information about cash and banking transactions.
Cash and Banking Transactions

Cash transactions

Cash is the life-blood of the business without which, it cannot operate smoothly. A cash transaction refers to any business transaction, which involves immediate payment or receipt of cash. So, a transaction that involves an increase or a decrease in cash balance or bank balance or both is called a 'cash transaction'. For example purchase and sale of goods or assets for cash, payment of any expense or receipt of any income etc.

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Banking transactions

When a transaction is made through the bank, then it is called a 'banking transaction'. So, a banking transaction involves immediate payment or receipt of cash through the bank.

Journal of Cash and Banking Transactions

Business transactions include both cash and banking transactions. In accounting, cash transactions are treated as the items of real account. But banking transactions are treated as items of personal account and sometimes as items of real account. Therefore, while recording cash and banking transactions of a business, the following points are to be considered:

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  1. The cash account is debited on any receipt of cash and cash account is credited on any payment of cash.
  2. On cash deposit into the bank, bank account (as a receiver) is debited and the cash account is credited. Similarly, on drawing of cash for business use, a reserve entry is made.
  3. When payment is made by a cheque, a bank account is credited.
  4. When a cheque is received, then the following points should be considered while recording this:
    • On same day deposit of such cheque, a bank account is debited.
    • On same day deposit of such cheque, the cash account is debited on the receipt of such cheque.
    • When no information of deposit of such cheque is given, a bank account is debited on receipt of such cheque.
    • No information of deposit of such cheque is given, a bank account is debited on receipt of such cheque.
  5. On dishonor of cheque, following points should be considered while recording this:
    • On dishonor of received or issued a cheque, a reverse entry is made.
    • On dishonor of received cheque, if the bank charges some amount, personal account of cheque giver is debited and bank account is credited including bank charges.
    • On dishonor of issued cheque, if the bank charges some amount, then bank charges account is debited separately and bank account is credited with the same amount.

Current deposit account
A current deposit account is also known as demand deposit account. This account is generally maintained by the traders and businessmen, which have to make a number of payments every day. There is no restriction on a number of deposit and withdrawal in a current account. So this is preferred by business entities.

Saving deposit account
This deposit is mostly of small amounts. The main aim of this account is to encourage and mobilize small savings of the public. Frequent withdrawals are not allowed in this account. Similarly, a limited amount can be withdrawn at a time. Generally, a low rate of interest is paid on these accounts.

Fixed deposit account
In this account, money is deposited only once and can be withdrawn only after the expiry f the agreed fixed period. Bank does not issue cheques and passbook to its depositors but issues a certificate. The rate of interest on this account is highest than that of other types of deposits. The longer the period, the higher will be the rate of interest. Fixed deposit is also called 'time deposit or time liability'.

Procedures of opening bank account

Before opening a current or saving account a person or an organization should satisfy the following requirements:

  1. First of all, a prescribed application form of a particular bank should be filled up.
  2. Then after, the name of the referee either a customer of the bank or a renowned person with his or her signature should be mentioned in the application form for reference to the bank.
  3. Two or more specimens of the signature should be made on cards supplied by the bank.
  4. After observance of these formalities, a bank can give a permission to open an account in the name of the applicant. At this time, the applicant is required to deposit at least, a minimum amount fixed by the bank.
  5. Then after, the bank provides the account holder a cheque-book and a pass book.
Things to remember
  • A cash transaction refers to any business transaction, which involves immediate payment or receipt of cash.
  • When a transaction is made through the bank, then it is called a ‘banking transaction’. 
  • The main aim of saving deposit account is to encourage and mobilize small savings of the public.
  • Fixed deposit is also called “time deposit or time liability.”.
  • It includes every relationship which established among the people.
  • There can be more than one community in a society. Community smaller than society.
  • It is a network of social relationships which cannot see or touched.
  • common interests and common objectives are not necessary for society.
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Cash / Bank Related Transactions
Questions and Answers

A cash transaction refers to any business transaction, which involves immediate payment or receipt of cash.

When a transaction is made through the bank, then it is called a 'banking transaction'. So, a banking transaction involves immediate payment or receipt of cash through the bank.

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