Chapter 6

Banking Monies
Received

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 Contents

1 The banking clearing system

2 The banker/customer relationship

3 Procedures for banking cash

4 Procedures for banking cheques

5 The duties of bankers

6 The paying-in slip

7 Queries arising from card transactions.

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 The Banking Clearing System

The Banking Clearing

System
The process of settling transactions between
banks. Because so many transactions take place
between banks on a given day, bank clearing
exists to process what each party owes or is owed
in a central location, so the least amount of
money changes hands.

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 The Banking Clearing System

1 . Person A(UBL customer) gives a cheque to person B.

2. Person B represent that cheque to his Bank which is HBL.

3. HBL sends a digital copy of

that cheque to UBL for clearing..

4. If sufficient funds available in person A account, His account will be debited and UBL
sends money to HBL. Now the customer B’s account will be credited by HBL...

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The Cheque Clearing Process

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 The Banker/Customer Relationship

The Banker/Customer Relationship

• You should note the important aspects of banks, bankers and their relationship with
their customers.
• How the clearing system works
• Relationships between banker and customer
• Rights and duties of banker and customer

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 What is a Banker?

What is a Banker?
• A banker is someone who will do the following.
• Put money and cheques received on a customer's behalf into his
account.
• Take out all cheques and orders paid from the account by the
customer.
• Keep accounts, such as current accounts, which can be used for
paying in or taking out on the customer's behalf.

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 What is a Customer?

What is a Customer?
• A person becomes a customer in respect of
cheque transactions as soon as the bank opens
an account for him in his name.
• In any other situation, for example when
investment advice is given, a person becomes a
customer as soon as the bank accepts his
instructions and undertakes to provide a
service.

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 The Contractual Relationships

The Contractual Relationships

• The relationship between bank and customer arises from legal contracts between
them which it is necessary to understand. There are four main types of contractual
relationship which may exist between a banker and a customer.
• Receivable/payable
• Bailor/bailee
• Principal/agent
• Mortgagor/mortgagee

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 Receivable/Payable Relationship

Receivable/Payable Relationship
• If you lend a friend, Bill, some money, then you are said to be Bill's account payable.
Bill owes you money and therefore he is your account receivable. This relationship
applies when a customer deposits money in a bank. At some point the bank will have
to pay back the money to the customer, so the customer is a account payable of the
bank while the bank is the account receivables of the customer
• Exactly the converse is true if a customer has an overdrawn account at the bank: the
receivable/payable relationship is reversed.
• The bank does not hold the client's money in trust. This would mean that they would
have to give any profit made using the money to the client. Banks don't do this, over
and above paying any agreed rate of interest to the customer.

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 The Bailor/Bailee Relationship

The Bailor/Bailee Relationship

• This relationship exists where a bank offers a safe deposit service to customers, which
allows use of the bank's strong room or safe. When it accepts the customer's property,
the bank has the following obligations.
(a) To take 'reasonable' care to safeguard it against damage and loss.
(b) To redeliver it to the customer or some other person authorized by him and not to
deliver it to any other person. In law this type of arrangement is known as a bailment.
• The customer is the bailor, the bank is the bailee.

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 Principal/Agent Relationship

Principal/Agent Relationship
• An agency relationship is one where one-person (the agent) acts for another (the
principal), usually for the purpose of doing business between the principal and a third
party.
• The use of an agent is often necessary as the principal does not have sufficient
specialist knowledge to deal with the third party himself. An example of this is where
an accountant deals with the tax authorities on behalf of a client.
• The bank may act as agent for its customers. It may also employ agents to handle
certain business, or it may have dealings with agents of its customers. A common
example of how the bank can act as agent is when the bank arranges insurance for the
customer, the bank is acting as an insurance broker and is the agent of its customer.

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 Mortgagor/Mortgagee Relationship

Mortgagor/Mortgagee
Relationship
This relationship arises when a customer asks a bank to give a loan
secured by a charge or mortgage over the customer's assets such as
property. The customer, or mortgagor, grants the bank, or
mortgagee, a mortgage. At the same time, the customer is the
receivable, and the bank is the payable for the loan. If the customer
does not pay back the loan the bank can sell the asset or assets to
recover its money.

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The Rights and Duties of Bankers

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The Rights and Duties of Bankers

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 The Duties of Bankers = Rights of Customers

A duty is a task or action which a person is bound to perform for moral or legal reasons.

There is no duty for the customer to ensure that he keeps records of

the account, and he has no duty to check the statements he gets from
the bank. This means that the onus is very much on the bank to ensure
transactions are correctly applied to a customer's account. However, it
is good business practice to monitor all bank accounts and reconcile the
account back to your general ledger.

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The Rights and Duties of Bankers

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The Rights and Duties of Bankers

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 Procedures for Banking Cash

Procedures for Banking

Cash
When banking cash receipts:
• Cash must be properly counted and sorted
• Notes and coins must be listed by denomination
on the paying-in slip

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 The Paying-in Slip

The Paying-in Slip

• When a business or an individual wants to pay money
into the bank, then normally a paying-in slip must be
used.
• The bank treats this as a kind of summary document
which 'totals up' the cash (or other forms of money)
which is being banked.
• A float is the money kept in the till at the end of the
day so that the next day there is some cash available to
give change to customers.

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 Procedures for Preparing a Paying-in Slip

Procedures for Preparing a Paying-in Slip

The following procedures are good practice to follow when preparing money for banking.
Step 1 Count the cash as described above.
Step 2 Add up, on a separate piece of paper, how much cash you are banking.
Step 3 Compare the calculated total to the total according to the cash register
Step 4 Calculate any discrepancy between the cash counted and the cash register total. If it is large
then it should be investigated, but if it is small then it may be ignored, depending on company policy.
Step 5 Enter the total for each denomination of note in the appropriate place on the paying in slip.
Step 6 Add up the numbers again to check the total and enter it in the 'total cash' box.

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 Example – Banking Cash
You are preparing the day's takings for banking. When you have
sorted and counted the notes you find you have the following.

A 5, $50 notes
B 110, $20 notes
C 560, $10 notes
D 40, $5 notes
E Six bags each containing 20 $1 coins
F Two bags each containing 10, 50 cent coins
G Ten bags each containing 50, 20 cent coins
H Other silver worth $32.20
I Bronze worth 93 cents

The float left in the till was $34.90 at the end of yesterday and $43.62 at the end of today. The till summary
states that $8,517.41 was received today.

Prepare the paying in slip and reconcile cash banked to the till records.

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 Solution

The amounts of money to be banked are worked out on a separate piece of paper.

$
5 x $50 250.00
110 x $20 2,200.00
560 x $10 5,600.00
40 x $5 200.00
6 x 20 x $1 120.00
2 x 10 x $0.50 10.00
10 x 50 x $0.20 100.00
Other silver 32.20
Bronze __0.93
Total 8,513.13

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 Solution

The change in the float must be considered. If it had stayed the same, then we would not need to make any
adjustment. Here it has changed by $8.72 ($43.62 – $34.90). If we had not increased the float by that amount,
then we would have been able to put that money in the bank. So, we should add it on to the money we are
banking to compare it with what the till says we have taken.

$
Money to be banked 8,513.13
Add increase in the float 8.72
8,521.85
Receipts according to the till 8,517.41
Difference 4.44

This difference is very small and would be ignored (or written off). The business should set a limit,
for instance $5, over which investigations are made. We will now complete the paying-in slip.

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 Solution

The paying-in slip is now ready to be taken to the bank with the money.

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 Security Procedures when Banking Cash

Security Procedures when Banking Cash

• We have already looked at some security procedures in Chapter 5. Generally, the points below should be
considered and implemented where possible.
• (a) Vary the time of the visit to the bank and vary which member of staff takes the money there.
• (b) If possible, send more than one person. This is particularly important when using the night safe. The banks
advise that one person should drive and then watch over the other person who carries the money and puts it
into the night safe.
• (c) If very large amounts of cash are banked regularly then the business should consider employing a security
firm to collect the money and deliver it to the bank.
• (d) It is always wise to fill in the part of the paying-in slip which is retained by the customer of the bank (on the
left-hand side) so you have a record of paying the money into the bank. You can record the information
elsewhere if you wish.

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 Procedures for Banking Cheques

Procedures for Banking Cheques

The details required on the paying-in slip when cheques are banked include:
• Name of drawer (or endorser)
• Amount of cheque
• Total value of cheques banked
• Number of cheques banked
The same paying-in slip is used for cheques as for cash, but this time we also need to look at the back of the
paying-in slip.

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 Procedures for Banking Cheques

Procedures for Banking Cheques

• The bank must have a list of the cheques which you are paying in. The following details
are required.
(a) The drawer (the person who signs the cheque)
(b) The amount

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 Returned/Dishonored Cheques

Returned/Dishonored
Cheques
After a cheque has been received and banked, the
bank may find it necessary to return the cheque to
you and to remove its amount from your bank
account. This is because the cheque has been
dishonored for payment. The two main reasons the
bank may give for dishonoring the payment are
insufficient funds and stolen cheques.

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 Procedures for Banking Plastic Card Transactions

Procedures for Banking Plastic

Card Transactions
• Queries arising from card transactions.
• The most common types of problem which arise with card
receipts are as follows.

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