JC: Commerce and Accounting Unit 13

Botswana Open University

Junior Certificate Programme

Commerce and Office Procedures

Unit 13: Money and Banking

© 2018 BOU
JC: Commerce and Accounting Unit 13

Acknowledgements

This unit is a product of many people who worked hard to see it ready for use by BOU
learners. BOU wishes to acknowledge contributions from the following.

Programme Development Coordinators

Tebo Gaborongwe Ditshweu
Tommie Hamaluba

Writer
Matshediso Molefhe

Content Editor
Keneilwe Mooketsi

Reviewer
M. Chilisa

Editor
Lobakeng Eric Setabo

DTP
Mompoloki Oitsile
Masole Otukile

Cover Design
Gaolatlhe Masire

© 2018 BOU
All rights reserved. Reproduction, copying and all forms of transmission are only in
accordance with the national Copyright Laws that are in force.

Please, address correspondences to:

The Vice Chancellor
Botswana Open University
Private Bag BO 187
Tel. 3181470/3646000
Fax: 3181473
Gaborone, Botswana

© 2018 BOU
JC: Commerce and Accounting Unit 13

Margin Icons
While working through this Course material you will notice the frequent use of
margin icons. These icons serve to “signpost” a particular piece of text, a new task or
change in activity; they have been included to help you to find your way around this
course material.

A complete icon set is shown below. Familiarise yourself with the icons and their
meaning before starting your study.

Learning Objectives References

Glossary Bibliography

Activity Unit Aims

Time
Unit Outcomes

Unit Assessment Introduction

Self-assessment Exercise Further Reading

Summary

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JC: Commerce and Accounting Unit 13

Contents
Introduction to Unit 13 i
Lesson 1: Money 1
Lesson 2: Banks 10
Lesson 3: Cheques 21
Answers to Self-assessment Exercises 30
Self-assessment exercise 1 30
Self-assessment exercise 2 32
Self-assessment exercise 3 33
References 35

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JC: Commerce and Accounting Unit 13

Introduction to Unit 13
Money and Banking
i Introduction
Hello learner and welcome to Unit 13 of Commerce and Accounting. In the previous units
you learnt about operating a business, which included Value Added Tax (VAT), wages and
salaries, and petty cash. This unit will be about money and banking. There is a link between
the previous unit and this unit in the sense that both units are about money. If you talk of
salaries, wages, and VAT, they all involve money values.
You will get to realise that for a business to start, the owner of the business or the
entrepreneur needs money to buy machines, tools, and equipment to pay workers and even to
pay the day-to-day expenses such as water, electricity, telephone and above all to buy the raw
materials so that production can take place.
After production, the goods are then sold to the consumers and the profits will then be kept at
the bank safely. The bulk of all money transactions today involve the transfer of bank
deposits. Thus a basic knowledge of the banking system is essential to an understanding of
how money works.

Unit Aims
At the end of this unit you should be able to:
• understand the qualities and functions of money
• appreciate the role of banks in business
• complete a cheque

Unit Contents
Lesson 1: Money 1
Lesson 2: Banks 10
Lesson 3: Cheques 21
Answers to Self-assessment Exercises 30
Self-assessment exercise 1 30
Self-assessment exercise 2 32
Self-assessment exercise 3 33
References 35

Time

You will need about two hours to complete each lesson in this unit. This means that you will
need about 6 hours to complete the entire unit. Please note that the suggested time is merely a
guide, you can take longer if you do not understand some parts of the lesson.

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Lesson 1
Money
i Introduction
This lesson will be all about money. I am sure you all have used money before and you know
what we are talking about here. In this lesson you will learn about forms of money and
qualities of money. You will go on to analyse the effect of changes in money value as well as
inflation and its causes.
I am certain that you know what money is as you always have to pay for something. For
instance most of you use combis or taxis to get around and therefore, have to pay for such
services with money. This lesson will give you a better understanding of what money is as
you will learn that when we talk about money we do not only mean notes and coins. The
qualities of money will teach you that money can be in many different forms.

Learning Objectives
At the end of this lesson you should be able to:
• define money
• state qualities of money
• explain the functions of money
• analyse the effects of changes in the value of money
• explain the meaning of inflation
• discuss the causes and effects of inflation

Contents List
1.0 Defining money 1
2.o Qualities of money 2
3.0 Functions of money 3
4.0 Effects of changes in the value of money 4
5.0 Inflation 4
Summary 6
Self-assessment Exercise 1 6
Glossary 9

1.0 Defining Money

Money is anything that is widely accepted in exchange of goods and services, as well as
payment of debts. I am sure you have been to a supermarket, general dealer or tuck shop
before to exchange money for an item, be it airtime, sweets, a loaf of bread, milk or anything
else that can be bought in a supermarket or shop.

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The forms of money include; cash, credit card, debit card, and cheques. All these can be used
to pay for goods or services or even settle debts.
Money is said to be legal tender. A legal tender is anything which the laws of a country can
force a creditor to accept in settling a debt, for example in Botswana if you pay a person that
you owe with the correct amount of Pula notes or coins, the person accepts them. The legal
tender of the country is the currency of that country. The legal tender for our country is Pula
and Thebe and the legal tender for South Africa is Rands and Cents. Can you please think of
the legal tender for other countries in the world? You can discuss with your study mates or
even ask your tutor if you do not know the currencies of some countries other than Botswana.
You have to know some of the major currencies especially those are used across many coun-
tries.

2.0 Qualities of Money

Here we are going to discuss the qualities of money. That is, how we can differentiate money
from other commodities/products.

21 Money is durable
This means that money lasts longer, that is, it should not be easily destroyed or damaged.
Our notes and coins have been made from special materials so that they cannot be damaged
easily.

2.2 Money is portable

Notes and coins used in Botswana and other countries are portable because of the material
used to make them. That is to say they are easy to carry around. For example, it may not be
easy to recognise if a person is carrying a large sum of money in his/her pocket as the money
is portable.

2.3 Money is divisible

Money must be able to be divided into smaller amount so that small payments can be made. I
hope that you know that Botswana money is divisible as follows:
P200, P100, P50, P20, P10, P5, P2, P1, 50t, 25t, 10t, and 5t. You can imagine if you want to
pay for a sweet at 25t but having only P200. That is why our money is divisible to allow for
small payments.

2.4 Money is easily recognised

As you already know that money has to be divided, each unit of money must be clearly
differentiated from one another. So money should easily be recognised by its colour or size,
or shape. For instance we all know that P20 is red, P10 is green and P100 is blue. On the
other hand, P5, 50t, 25t, 10t, and 5t coins are round while P2 and P1 coin have corners.
Furthermore, you can distinguish between a P2 and a P1 coin because of the differences in
their sizes despite the fact that they are of the same colour.

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2.5 Money is uniform in quality

The material used to make the same unit of money must be the same. For example; P100.00
notes have the same features, size, and material so that people cannot be able to make their
own money. Some people make their own money (fake money) and it is a big criminal
offence.

Activity 1

1. List three forms of money.

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Feedback to Activity 1
Learner I hope you have the following as the forms of money. Please compare your
answers with mine and make corrections where necessary.
• Cash – you can use cash to make payments, for example, paying
P200.00 cash for BOCODOL school fees, as cash is used as a means
of payment.
• Credit card – this can also be used as a form of payment. For example,
your parent or even you can come and use a credit card for paying your
school fees at BOCODOL if they have a machine for swiping the
card.
• Debit card – your parents or you can swipe P200 school fees at BOCODOL
using a debit card. As long as there is money in your account.
• Cheque – your parent or you can still write BOCODOL a cheque of P200 to
pay for your school fees, and then the cheque will then be deposited into
BOCODOL account or cashed for cash.

3.0 Functions of Money

Money is mostly used to buy goods and services; this though does not mean that that is the
only use for money. Money can be used for many other functions as discussed below.

3.1 Money is a store of value

This means that money can be kept and used in the future. Money can be saved and be used
in future when it is needed. For example, if one has a perishable commodity like potatoes,
they can be sold and money from selling it kept. But potatoes cannot be kept for such a long
time as compared to money as they will rot and become useless. Money can be saved for
indefinite period of time. However, money saved over a long period of time can loose value
as will be discussed later under inflation.

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3.2 Money is a measure of value

Money helps to price different things and also compare different goods and services. For
example, a house built from mud and grass is different in value from the house built from
bricks and tiles. The one built from bricks and tiles is obviously more valuable in terms of
money as it is more expensive than the one built from mud and grass.

3.3 Money is a unit of account

Money is the common standard for measuring relative worth of goods and service. Under
normal circumstances, a good priced higher is more worth than the same good priced low.
The price of a good can also be used to have an idea of the quality of such good or even
service. Do you know that some Chinese shops sell cheap clothes and goods, which are also
of poor or low quality?

3.4 Money is a medium of exchange

Money can be used for buying and selling goods and services. If there was no money, goods
would have to be exchanged through the process of barter (goods would be traded for other
goods in transactions arranged on the basis of mutual need). For example: If I raise chickens
and want to buy cows, I would have to find a person who is willing to sell his cows for my
chickens. Such arrangements are often difficult. But money eliminates the need of the double
coincidence of wants. For example, you can go to Choppies store with P6. 00 and get a loaf
of bread .You have exchanged P6.00 with a loaf of bread.

4.0 Effects of Changes in the Value of Money

If the money value changes, obviously there will be results due to those changes. The
following are the changes in money value.
• If the value of money changes, for example, if it goes up, the prices of goods and
services will go up as well. For example, in Botswana currently the price of fuel
keeps going up as the price of crude oil that makes petrol also goes up. This,
therefore, means petrol now becomes expensive to people and some may resort to
using public transport than using their cars as it is cheaper to use public transport.
• If the value of money decreases, people will now afford only basic needs and will
no longer afford to buy luxurious goods. This will therefore mean their standards
of living will go down.

5.0 Inflation
Do you know that the value of money does not remain the same at all times? If there is
inflation the value or purchasing power of money falls. Inflation happens when prices of
goods and services goes up. Botswana is facing inflation at the moment as prices of goods
and services have gone up and people cannot afford to buy some of these goods and services
they used to be able to buy.
Inflation therefore is defined as the general increase in prices of goods and services in an
economy and therefore a fall in the purchasing power of money. The fall in the purchasing
power of money basically just means that for example P20 used to be able to buy two cups of
coffee but now due to inflation P20 can only buy one cup of coffee.

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Inflation is a steady increase in the prices of goods and services in a country, usually
measured in terms of a specific annual percentage. This decreases the purchasing power
of the currency by reducing the amount of goods or services a person can get for the same
amount of money.

5.1 Causes of inflation

There are two major causes of inflation namely cost-push and demand-pull inflation.

(a) Cost-push inflation

Cost-push inflation occurs when manufacturers and businesses raise prices as a result of
shortages, or as a measure to balance other increases in production costs. An example of this
is raising labour costs. When workers demand wage increases, companies usually pass on
these costs to their customers by charging higher prices to the final goods and services.

(b) Demand-pull inflation

This occurs when the demand for goods and services exceeds the supply for those goods and
services. Factors that commonly lead to demand-pull inflation include a sudden increase in
the amount of money in an economy and decreases in taxes on goods, which leaves
consumers with more income to spend. Since people have more money to spend,
manufacturers will therefore raise the general prices of goods and services.
Other causes of inflation include wars, natural disasters, and decrease in natural commodities.
Wars often result in this situation, as governments must recover the money spent on them,
and repay the funds borrowed from Central Banks. Wars also affect international trading
labour costs, and product demand, resulting in a rise in prices. Natural disasters may have a
similar effect by disrupting the usual cycle of the production process. This creates temporary
scarcity as people scramble to purchase the limited supply of goods, causing the prices to rise
rapidly.
Political instability can also be said to be a cause of inflation; although it can be said to fall
under the two major causes of inflation. If a country faces some political problems such as
strikes, this tends to affect the economy of a country and this may even make prices of goods
and services go up. Do you still remember the political instability that has taken place in
Zimbabwe? The economy got so affected badly such that they even could not afford to make
their own currency. Thus, they resorted to using foreign currency even within the country.

5.2 Effects of inflation

Inflation can and does have varying impacts on different people and on the economy.
Learner, note that inflation has both positive and negative effects to the economy of a country.
Below we will discuss both the positive and negative effects of inflation.
Probably the most significant effect of inflation is its effect on the revenues of the
government. When inflation is higher than previously thought and planned, the revenues of
the government increases, which is good as the budget balance of the government improves.
The reason why revenues of the government increases when inflation increases is because
the government has higher tax revenues. For example a company sells its products at higher
prices, which increases the total income of the company, which in turn increases the gross
(before tax) profits of the company. Greater before tax profits result in greater taxes paid to
the government.

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Inflation can also slow down the growth of the economy, thus serving as a natural economy
balancer. This is because when prices of a certain product increase a large number of people,
as well as companies start to buy less and less of that product.
Inflation can also be quite destructive. For example, a low inflation rate makes imported
products cheaper, whereas domestic manufacturers’ product prices remain the same.
A reduction in inflation causes lower imported product prices, meaning two things. First,
because of the lower import prices, more people will buy more imports opposed to
domestically manufactured products. This hurts domestic production, which in turn may
result in rising unemployment (domestic producers firing employees to keep up with
shrinking sales revenue) Another problem with rising inflation arises when inflation starts to
increase excessively. For example, when inflation surpasses 10 percent that has two effects.
People will start spending more, and also the real value of savings of both people and
organisations also decrease.

Summary
In this lesson you have learnt that:
• Money is anything which can be used to make payment
• The qualities of money include; durability, portability, divisibility, money is also
easily recognized, and money is uniform in quality.
• Functions of money are that: money is a store of value, measure of value, unit of
account, and medium of exchange.
• When there is change in money value, the goods and services will be expensive
as the prices will go up.
• Inflation is the general increase in prices of goods and services in an economy
and the consequent fall in the purchasing value of money.

Self-assessment Exercise 1
1. Why is it important to keep money at the bank?
A. Helps to make the bank rich
B. It helps them to use it for future
C. It is a good tradition
D. It is a government registration

2. Which of the following are types of money.

A. Notes, coins, and bank deposits
B. Notes, coins, and bank guarantee
C. Notes, coins, and postal orders
D. Notes, coins, and stop orders

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3. Which of the following is a function of money?

A. Money is divisible
B. Money is durable
C. Money is a legal tender
D. Money is store of value

4. Which of the statement causes inflation?

A. Changes in government
B. Changes in the weather
C. Changes in presidency
D. Political instability

5. Which of the following definitions describes inflation?

A. Decrease in the purchasing power of people
B. Decrease in the standard of living of people
C. Increase in prices of goods and services in an economy and consequent fall in the
purchasing value of money
D. Increase in the buying of luxurious goods and services

Section B
1. What is money? [1 mark]
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2. Explain three qualities of money. [6 marks]
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3. Explain two effects of changes in money value. [4 marks]

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4. Explain the meaning of inflation. [1 mark]

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5. Discuss the causes of inflation. [4 marks]

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6. Discuss the effects of inflation. [4 marks]

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Glossary
Commodity: Products that people buy and use.
Creditor: Individuals or businesses that the business owes.
Debt: Amount of money owed to an individual or company.
Inflation: Increase in prices of goods and services in an economy and consequent fall
in the purchasing value of money.
Legal tender: A form of money that must be accepted in the settlement of a debt.

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Lesson 2
Banks
i Introduction
In the previous lesson you learnt about money. In this lesson you will learn about banks;
types of banks, functions of the different types of banks, different types of accounts, and the
need for keeping money in the bank. As you already know, a bank is an organisation that
accepts money and other valuables for keeping them safe on behalf of the client. It also offers
loans so that it can earn interest and makes it possible for businesses and individuals to make
payments within and outside the country.
Banks provide a safe place to save excess cash, known as deposits. Instead of money
sitting uselessly under the mattress, banks can turn every one of those Pulas into something
more. That is because they only have to keep 10% of your deposit on hand. They lend the
other 90% out. They make more money from this 90% that they send out hence keeping your
money in the bank is wiser than keeping it at home. Banks primarily make money by
charging higher interest rates.

Learning Objectives
At the end of this lesson you should be able to:
• differentiate between the types of banks
• state the functions of the Central Bank
• explain the functions of commercial banks
• compare savings, current, and fixed deposit account
• discuss the need for keeping money in the bank

Contents List
1.0 The Central Bank 11
2.0 Commercial banks 12
3.0 Different types of accounts 14
4.0 The need for keeping money in the bank 16
5.0 Other financial institutions 17
Summary 17
Self-assessment Exercise 2 18
Glossary 20

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1.0 The Central Bank

A Central Bank or Reserve Bank is an organisation within a specific country that regulates
all of the currency supplies and related policies for that particular country. Central Banks
perform various functions, but their most important function is to make sure that the national
currency and money supply remain stable. Depending on the country, Central Banks may be
government owned and controlled or may be run under regulations that are specifically
created to prevent extensive government interference.
The Central Bank of Botswana is called the Bank of Botswana and is based in Gaborone and
has a branch in Francistown. Normally individuals, companies or businesses cannot open
accounts with the Central Bank. The Governor and Board of Directors run the Central Bank.
The Governor is appointed by the state president for a maximum term of five years, which is
renewable.

1.1 Functions of the Central Bank

The functions of a Central Bank may include many different tasks. This type of bank has
responsibilities that may include distribution of currency and implementation of monetary
policy. Regulating the banking industry and setting official interest rates may also be done
there.
Below we will discuss some of the functions of the Central Bank.

(a) The Central Bank issues bank notes and coins

In any country the Central Bank is the only one that issues the currency of that particular
country. In Botswana the Central Bank is responsible for arranging the printing, storing, and
circulation of our Pula notes and Thebe coins. This bank also ensures that the material used
for making money is good quality. Therefore, it collects all worn-out money from circulation
and replaces them.

(b) It is a banker to commercial banks

This means that the commercial banks keep their money with the Central Bank. The bank
also helps the banks by clearing cheques, that is, the exchange of cheques between banks. In
addition it can make payments on behalf of the commercial banks.

(c) It is a banker to the government

The bank receives all money paid to the government and makes payments on behalf of the
government both in the country and outside the country. For example, all the taxes paid go
to the Central Bank. It also advises the government and public corporations on the timing as
well as terms and conditions of borrowing. The Central Bank therefore, looks after the
government’s money and maintains the government account.

(d) It controls foreign currency

The Central Bank controls the foreign currency by managing the foreign reserves of a
country through investing in liquid assets in different major currencies like US dollars,
Pounds Sterling, Deutsche Marks and Japanese Yen. It ensures that the income of the foreign
exchange can meet the payments of the country.

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(e) It is a lender of last resort

The Central Bank can lend money to commercial banks if they cannot get money from any
other source.

(f) It controls monetary and exchange policy

This means that the Central Bank monitors and implements monetary policies of the country.
For example, it is the Bank of Botswana that sets the interests rates of borrowing for the
commercial banks.

(g) It controls money supply and credit

The bank controls the supply of currency and commercial banks’ credit. That is when the
Central Bank creates more credit the commercial banks’ deposits increase. If it wants the
money supply to decrease it reduces the commercial banks’ credit.

(h) It is an advisor to the government

The Central Bank advises the government on monetary policy matters such as inflation,
taxation, and exchange rates. It advises the government on different aspects of financial
policy.

(i) It services the national debt

Just like individuals, the government also borrows money. For example, it can borrow from
international financial institutions such as the World Bank or the International Monetary Fund
or African Development Bank. The Central Bank sees to it that such debts are paid.

2.0 Commercial Banks

Commercial banks are those banks that are licensed by the Central Bank. They are set up
to promote and facilitate financial transactions. The banks make profit because they accept
deposit and lend individuals and companies money that has to earn interest. These types of
banks allow customers to open different accounts, such as current accounts, savings, and
fixed deposit accounts. They can also make payments on behalf of customers.

Activity 1

Name five commercial banks that you know in Botswana.

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Feedback to Activity 1
I hope your answers include the following; Barclays Bank, Standard Chartered Bank,
FNB, Stanbic Bank, Bank Gaborone, Bank of Baroda, Capital Bank, Bank ABC.

2.1 Functions of commercial banks

I am sure you have been to one of the commercial banks before and have some functions of
these banks in mind. If you have not, it is still fine as we are going to discuss their functions
one by one. The following are functions of commercial banks:

(a) Keeps money safe

Commercial banks keep money for individuals and businesses safely. Keeping money at
home is not at all safe as the money can be stolen. Money kept at the bank also earns
interest, which is actually a share of the profit made from the money you keep at the bank
because when you put the money at the bank, the bank will lend it to somebody who will
repay it with interest and it is part of this interest which is passed on to you the person who
has got money at the bank.

(b) Accepts deposits on behalf of customers

The customers deposit money in different accounts they have opened with these commercial
banks.

(c) Deal with foreign currencies

Banks allow customers to buy and sell foreign exchange. Commercial banks provide foreign
currencies to business people and individuals if required. Businesses and individuals need
foreign exchange when paying for imports and this is provided by commercial banks.

(d) Offer loans/overdrafts to their customers

Each bank offers loans to their customers and they open a loan account and pay that amount
with interest. When a customer wants an overdraft they make an arrangement with the bank
manager and then the money will be credited in the customer’s current account.

Table 1: Differences between an overdraft and loan

Overdraft Loan
No security required when applying for
Security required when applying for loan
overdraft
Interest charged on the exact amount
Interest on loan charged on full amount
overdrawn
Overdrafts are used for day-to-day
Loans are used to buy capital items
running expenses, that is working capital
Informal way of borrowing
Formal way of borrowing
Cheaper way of borrowing money Expensive way of borrowing money

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(e) Give advice to the customers

These banks give monetary and investment advice to their customers. The banks share the
knowledge about the financial and capital markets and can advise their customer where to
save their money.

(f) Help customers to make and receive payments

When a customer is a current account holder the bank can make payments in different ways.
The bank can help individuals make payments in the following ways:

(i) Cheque
A cheque is an order to the bank to pay an amount to a named person. You will learn more
about a cheque later in this unit.

(ii) Standing order

This is a type of pre-agreed payment under which an account holder requests a bank to pay a
specified amount, directly from his/her account balance, to a named party on a regular basis.
Standing orders are used typically for recurring, fixed-amount expenses such as insurance
premiums, mortgage installments, and subscriptions.

(iii) Direct debit

A direct debit can be set up to make payment on a particular date every month. Money is then
withdrawn from the customer’s bank account automatically by the company or individual you
are paying, as per your instructions.

(iv) Debit and credit cards

Customers may pay using debit and credit cards, which is fast and convenient, as customers
do not have to carry cash around. Debit and credit cards are actually Automated Teller
Machine (ATM) cards that can also be used to pay for goods and services. They entitle
account holders to spend money they have in their accounts.

(v)Traveller’s cheques
This is the most suitable way of carrying money when going out of the country. Travellers’
cheques are cheques for fixed amounts sold by a bank and can easily be cashed in a foreign
country.

3.0 Different Types of Accounts

There are different accounts that one can open at a bank. The main ones are discussed below.
Learner, as you go through this part of the lesson you will notice that different bank accounts
have different purposes.

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3.1 Current account

This is an account from which the account holder can withdraw money at any time. You need
to have a regular monthly income to open a current account. The account holder will be given
a chequebook and can write a cheque to make payments. This type of account does not earn
interest, but the account holder will pay bank charges every month, which are called cost of
transactions or ledger fees. The account holder receives a statement every month end
showing all transactions of the month in their account. Current account holders are also
provided with other bank services such as credit transfers, standing order, direct debiting and
overdraft facilities.
You need to do the following to open a current account;
• Provide a written proof of identity
• Fill in an application form giving details such as name, address, occupation
• Provide proof of employment or regular income
• Provide specimen of signature

(a) Benefits of current account

• Provides the account holder with immediate access to cash, that is money can be
withdrawn anytime without any restriction as long as the customer has money in
their accounts.
• Allows customer to use cheque and ATM.
• Customers are kept up to date with their finances through regular bank
statements.
• Provides facilities such as overdrafts, standing order, and direct debits for making
payments.

3.2 Savings account

This account is suitable for small savers with regular incomes. This type of account enables
customers to save their surplus money, so that it can earn interest. Customers are allowed
to withdraw their money when they need it. It has low opening and low minimum balance
requirements. No ledger fees are charged and the account holder is not given a chequebook.
A savings account is subject to a certain minimum balance, which means whenever you take
money from your account there must be a certain amount left to keep the account open.
For you to open a savings account you have to fill in the application form by giving your
names, your address, occupation as well as proof of your identity. You will then be given an
account number to which you make deposits. To pay money in the account a deposit slip is
filled.

(a) Advantages of a savings account

• It is flexible as cash can be obtained from any branch around the country.
• Withdrawal can be made at different ATMs.
• Customers have easy access to their money, as they do not need to give notice to
withdraw the money.

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(b) Disadvantages of savings account

• There are no overdraft facilities to savings account holders.
• No cheque books given.
• There is a limit on daily withdrawals.

3.3 Fixed deposit account

This type of account is used to keep money for a fixed and long period of time. A customer
who has money in a fixed deposit account cannot withdraw any of his/her money before the
end of the stated period. Commercial banks pay interest for the money kept in a fixed deposit
account. The amount of interest paid depends on the amount of money deposited and how
long the money will remain in the account. The rate of interest paid on fixed deposit accounts
is higher than the rate of interest paid on savings accounts.
To withdraw money from a fixed deposit account, the customer has to give the bank seven
days notice.

(a) Advantages of fixed deposit account

• Enables customers to select a period suitable to their needs
• Customers enjoy high interest rates
• It is a secure form of investment

4.0 The Need for Keeping Money in the Bank

Can you just imagine how life would have been without banks? It would have been a
problem as people will just keep their money at home and keeping money at home is not at
all safe. People will not be able to accumulate interest that they get for saving money at the
bank and would not be able to raise more money for future use.
The following are reasons for keeping money at the bank.
• The bank keeps customer’s money safe: The risk of keeping money at home is
enormous as it can easily be stolen. Banks provide a safe place for keeping
money.
• Money kept in the bank earns interest: This means that when money is kept in
the bank it will increase because of the interest made. For example, say if you
save P500 – P10 000 it can earn anything from 3% to 7.5 % in a certain period of
time.
• They can help customers to raise capital: This means that instead of getting a
loan one can save their money, which they can use to start or expand their
businesses in future.

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5.0 Other Financial Institutions

There are also many other financial institutions besides the Central Bank and commercial
banks. Those other institutions in Botswana are discussed below.

5.1 National Development Bank (NDB)

The National Development Bank provides a long-term capital for agricultural, commercial
and industrial sectors. This bank usually gets funds from the government. It is known as a
development bank because it helps people to develop enterprises as well as individual
projects from the scratch by providing venture capital.

5.2 Botswana Savings Banks (BSB)

This bank assists savers to save their surplus money. BSB operates through the post office
network and provides its service to low-income people. It provides ordinary savings
accounts, special accounts, and Save-As-You-Earn scheme with differing interest rates. It
also has other facilities such as the Ipelegeng loan scheme, which is offered to Save-As-You-
Earn and Thobo special savings account holders.

5.3 Botswana Building Society

This financial institution provides long-term loans for the purchase or building houses. It also
encourages customers to own shares in the society. Furthermore, it provides savings accounts
similar to those provided by commercial banks.

5.4 Insurance companies

These companies do exist to compensate their clients in case of any loss they may have
suffered due to the risks such as fire, theft, motor accidents and even accidents for workers
at their workplaces. The customers pay a monthly premium to an insurance company and the
insurance company will pay the policyholders in case of any loss.

Summary
In this lesson you learnt the following:
• A bank is an organisation that accepts money and other valuables for keeping
them safe on behalf of the client.
• There are different types of banks such as the Central Bank, commercial banks,
and development banks.
• The Central Bank issues money, is a banker to commercial banks, a banker to the
government, controls foreign currency, a lender of last resort, supervises
commercial banks, controls monetary and exchange policy and controls money
supply and credit.
• Commercial banks accept deposits on behalf of customers, deal with foreign
currencies, offer loans/overdrafts to their customers, give advice to the customers
and help customers to make and receive payments.
• The bank keep customer’s money safe, money kept in the bank earns interest and
helps customers to raise capital.

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• Savings bank assists savers to save their surplus money.

• Three main types of bank accounts are; current, savings, and fixed deposit
accounts.
• Deposit slip is a form that one fills when depositing cash or cheque in the
account.

Self-assessment Exercise 2

1. Which of the following is a function of the Central Bank?

A. Keeping accounts for individuals
B. Keeping valuables
C. Lending to the public
D. Servicing the national debt

2. Which bank has the right to issue bank notes and coins in Botswana?
A. Barclays bank
B. Bank of Baroda
C. Bank of Botswana
D. Standard Chartered bank

3. Which of the following payments method is suitable to pay for an electricity bill?
A. Credit transfer
B. Direct debit
C. Loan
D. Standing order

4. Which of the following banks is a commercial bank?

A. Bank of Botswana
B. Barclays bank
C. Insurance company
D. Mortgage bank

5. What is a facility where the bank allows a current account holder to withdraw more
than what he/she has in the account?
A. Direct debit
B. Loan
C. Overdraft
D. Stop order

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Section B
1. Give two differences between the following:
(a) Central Bank and commercial banks. [4 marks]
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

(b) National Development Bank and Savings banks. [4 marks]

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

2. State three features of a current account that makes it different from the other bank
accounts. [3 marks]
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

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3. State three functions of commercial banks. [3 marks]

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

4. Explain three benefits of using a fixed deposit account. [6 marks]

__________________________________________________________________________
__________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

Glossary
Direct debit: A facility is used for making regular payment buy only when amounts to
pay and intervals vary from time to time.

Overdraft: A facility offered to current account holder where account holders are
allowed to withdraw more than what they have in the account.

Standing order: A facility is used when making regular payments of fixed amounts on fixed
dates such as paying for rent, loan repayments, insurance premiums etc.

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Lesson 3
Cheques

i Introduction
Learner, I take it you already know a lot about the bank from the previous lesson. You have
learned about all the functions of commercial banks and the Central Bank. One of the
functions of commercial banks is that they help individuals to make deposits and make
payments through the use of cheques. This lesson will focus more on cheques. You will learn
about the parts of a cheque, and the advantages and disadvantages of using a cheque. The
Automated Teller Machine (ATM) will also be discussed and its advantages and
disadvantages.
A cheque is an order in writing addressed to a particular bank to pay a specified sum of
money to the person named on it. A cheque is considered an order because the money
involved belongs to the account holder who is instructing the bank to make a particular
payment. However banks usually cross check the identities of the person being paid and the
drawer’s (person writing the cheque) signature before paying out any money. This is done for
protection because otherwise anyone could just present a cheque for payment.

Learning Objectives
At the end of this lesson you should be able to:
• identify the parts of a cheque
• complete a cheque
• state the advantages and disadvantages of using a cheque
• explain the uses of the Automated Teller Machine (ATM)
• discuss the advantages and disadvantages of using an ATM

Contents List
1.0 Parts of a cheque 22
2.0 Types of cheques 23
3.0 Endorsing a cheque 24
4.0 Dishonoured cheque 24
5.0 Advantages and disadvantages of using a cheque 24
6.0 Automated Teller Machines (ATMs) 25
Summary 26
Self-assessment Exercise 3 27
Glossary 29

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1.0 Parts of a Cheque

Learner as we have already mentioned in the lesson introduction, a cheque is an order in
writing addressed to a particular bank to pay a specific sum of money to the person named
on it. We have briefly mentioned in the introduction how a cheque works. Therefore, for this
part of the lesson we will focus more on the parts of a cheque.
Cheques have certain features that increase their security to make sure that they are
original and also make their processing easier for the banks and other financial institutions.
The signature of the drawer (that is the person completing the cheque) is required to authorise
the cheque and this is the main way to ensure that the cheque is original. It is also customary
to write the amount of money in words as well as in figures to avoid mistakes and make it
harder to change the amount and the name after the cheque had been written.
It is important for you to know the elements of a cheque to ensure that the cheque is
properly written since a correctly completed and signed cheque acts as an authority to the
bank to withdraw from your account. Also you have to know these elements because by the
end of this lesson you are expected to be able to complete a cheque. Figure 1 below shows an
illustration of a correctly completed cheque.

Figure 1: A completed cheque

Learner, I hope that from the above diagram you can identify all the key elements of a
cheque. Please take your time so that you fully understand these elements.
There are three parties involved in the writing and the cashing of a cheque; the drawer, the
drawee and the payee.
• The drawer is the person writing and signing the cheque and from whose account
the cash is to be withdrawn.
• The drawee is the branch of the bank that has the account of the drawer. The
branch has got all the information about the account holder.
• The payee is the person to whom payment is being made. The name of this
person is stated on the cheque.

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Below are important aspects to note about a cheque:

• The customer’s account number is written at the bottom right of the cheque in
magnetic characteristics in order to allow computer sorting.
• The date on which the cheque has to be cashed is written at the top of the cheque.
• The name of the payee is written after the word “pay” on the cheque.
• The amount to be paid out is written both in words and figures. If there is any
difference between the amount in words and in figures, the bank will not pay out.
• The signature of the drawer must be the same as the specimen and is usually
written on the bottom right hand corner.

2.0 Types of Cheques

Writing a cheque may seem like a thing of the past when it comes to paying for items or
services. These days credit cards, debit cards, and ATM cards are prominently used to pay
for transactions when people decide not to use cash. However, there are different types of
cheques with functions that cannot be achieved by using credit and debit cards.
There are two types of cheques.
(i) Open cheques and
(ii) Crossed cheques

2.1 Open Cheques

An open cheque is one that can be taken to the bank that issued the cheque and converted to
cash right away. The bank will ask for proof of identity from the person cashing it to ensure
that they are paying the right person to whom the cheque was issued. Open cheques may be
bearer or order cheques.

(a) Bearer cheque

A bearer cheque is that which the bearer of the cheque can cash. Any person who is in
possession of a bearer cheque can cash it without any difficulty. Any person who lawfully
possesses a bearer cheque is entitled to receive payment from that cheque. This is a cheque
made payable to the bearer, that is, anyone who presents it at the bank. The name of the
bearer is not specified. This type of cheque is very unsafe because if it is lost it can be
presented by anyone who can come across it.

(b) Order cheque

If a cheque is specifically naming the person that is to be paid, then that cheque is called an
order cheque. The bank pays the order cheque only when the bank is satisfied about the
identity of the payee (the person whose name is on the cheque). This cheque is safe as only
the person named on it can cash it.
Do you notice the difference between the bearer cheque and the order cheque? If not, go over
the two types again. It is important to fully understand the difference between these two types
of open cheques.

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2.2 Crossed cheques

Crossing a cheque means drawing two parallel lines across the face of the cheque. A crossed
cheque is also called an account payee cheque. This is a cheque that can be cashed only by
depositing it into a bank account of the person whose name is printed on the cheque. It cannot
be directly converted to cash. If a cheque is crossed by drawing two parallel lines across the
face of the cheque, with or without the words “Acoounts payee only” or “Not negotiable” or
“And company”, it is called a crossed cheque. The purpose of crossing a cheque is to ensure
that it is deposited into a bank account and not cashed over the counter. A crossed cheque is
therefore safer than an open cheque.

3.0 Endorsing a Cheque

What does “endorse” mean?
When you endorse a cheque, you sign it on the back. This gives the bank permission to give
you cash for the cheque. It proves that you are the person the cheque is payable to. The bank
will then give you money without any difficulty.

4.0 Dishonoured Cheque

This is a cheque that the bank refuses to obey its order for payment. Instead the bank will
write RD (meaning refer to drawer) on the face of the cheque and return it to the payee. When
a cheque is dishonored it is often said that the cheque has “bounced”.

4.1 Reasons for dishonouring a cheque

• Sometimes there will be mistakes made on the cheque. For example, instead of
wring P100, the drawer writes P1000.
• The signature on the cheque differs from the signature specimen that the bank has
• It is a post dated cheque, that is, it has a future date, therefore it can only be
cashed on that future date
• The drawer has closed the account
• Sometimes the cheque will be stale, meaning the payee has kept the cheque for
over six months before taking it to the bank for payment, so basically the cheque
has expired.
• Sometimes the drawer does not have enough money in the account. That is the
bank will not pay more than what the drawer has in their bank account.

5.0 Advantages and Disadvantages of Using a

Cheque
When payment for goods and services is made by cheque, it is a conditional payment. The
condition is that the cheque will be paid on presentation. This has some important practical
consequences.
There are some practical advantages and disadvantages in paying by cheque. Please find
below both the advantages and disadvantages of using cheques.

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5.1 Advantages of using a cheque

• Cheques are safer because you do not have to go around carrying lots of money.
• Cheques can be easily traced as they are numbered.
• Crossed cheques can be safely sent by post because they are safer than open
cheques.
• The money stays in the bank until a cheque is cashed.
• To stop payment, the drawer of the cheque simply writes an instruction to the
bank and the bank would not honour such a cheque.

5.2 Disadvantages of using a cheque

Although cheques have advantages, they can also be of disadvantage as outlined below:
• Sometimes the information on the cheque can be altered and enable people to
steal and cash the cheque.
• Sometimes there will be insufficient money in the drawer’s bank account and this
can cause inconvenience to the payee.
• Cheques are not practical for small debts. For example, when paying a bus fare or
buying airtime.
• For people who do not have bank accounts, paying them by a crossed cheque may
be an inconvenience to them.

6.0 Automated Teller Machines (ATMs)

These are bank owned machines from which bank customers can withdraw money. Most of
them are situated outside the bank building. An account holder is given a small plastic card
(ATM card) and a secret personal identification number (PIN) that he/she will use to with-
draw money from the bank through ATM at any time. The ATM allows the customer to check
their statement and deposit money. Money can be obtained 24 hours a day.

6.1 Steps for using the ATM

1. Insert an ATM card into the machine slot.
2. Enter your PIN.
3. Follow the instructions that appear on the screen.
4. Select what you want to do.
5. Get your card from the machine and then shortly the amount of money that you
requested will come out.
6. After you get your money, a receipt will come out to show the transaction and the
balance in your bank account. If there are no receipts in the machine, a message to that
effect will be displayed on the screen.
Some ATMs can now provide the following services;
• Electronically transfer money from one bank account to another
• Accept orders for chequebooks or full statements.

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6.2 Advantages and disadvantages of using an ATM

There has been a number of incidents of fraud, where criminals have attached fake keypads
or card readers to existing ATMs. These have then been used to record customers’ PINs and
bank card information in order to gain unauthorised access to their accounts. However,
various ATM manufacturers have put in place countermeasures to protect the equipment they
manufacture from these threats.

Find below advantages and disadvantages of ATMs.

(a) Advantages of using ATMs

• There are many ATMs around, so there is no need to go around looking for banks
to use the bank services.
• People do not carry large amounts of money around because they can use the
cards as a means of payment or they can get money when they need it.
• It is cheaper because it costs less money than the amount one can pay when
he/she cashes over the counter.
• Money can be withdrawn at anytime because the machines provide a 24-hour
service.
• The card can be used to swipe, therefore they buy at different stores.

(b) Disadvantages of using ATMs

• The ATM card can be lost or stolen and thieves can access your account.
• Account holders must always remember their PIN in order to operate the
machine, failing which they would not be able to get the money from the
machine.
• Sometimes there will be no electricity and therefore you cannot get the services
from the machines or even pay using the card.
• Sometimes the machines may be out of service simply because they are out of
cash.
• There is a limit on the daily withdrawals by ATM cards.

Summary
In this lesson you have learnt that:
• The cheque has the following parts: the customer’s account number, the date,
name of the payee, amount to be paid both in words and figures, the cheque
drawer’s name as well as his/her account number.
• The signature of the drawer must be the same as the specimen and is usually
written on the bottom right hand corner of the cheque.
• The two types of cheques are the open and crossed cheque. Open cheque can
either be bearer or order cheques.

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• A cheque may be dishonored because of the following reasons; sometimes there

will be mistakes made on the cheque, the signature on the cheque differs from the
specimen given to the bank, the drawer has stopped payment, it is a post dated
cheque, the drawer has closed the account, the cheque is stale,
• Endorsing a cheque means signing a cheque at the back as proof that you are the
payee.
• When using an ATM: Insert an ATM, enter the PIN, follow the instructions given
and select what you want to do and then get back your card from the machine and
wait for your money, Finally get your receipt from the ATM.

Self-assessment Exercise 3

1. What is to endorse a cheque? [1 mark]

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

2. Outline four uses of an ATM. [4 marks]

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

3. Discuss two disadvantages of using ATM card. [4 marks]

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

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4. Define the following:

(a) Open cheque [2 marks]
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(b) Crossed cheque [2 marks]
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
5. Draw and clearly label the following parts of a cheque. [11 marks]

(i) branch name

(ii) account number
(iii) drawee
(iv) payee
(v) branch number
(vi) amount in figures
(vii) cheque number
(viii) account holder’s signature
(ix) amount in words
6. State three advantages and three disadvantages of using a cheque. [6 marks]
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

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Glossary
Bearer cheque: This is a cheque made payable to the bearer, that is, anyone who
presents it at the bank.
Crossed cheque: A cheque, which has got two parallel lines down its face
Dishonored cheques: This is a cheque, which the bank refuses to obey the order to pay.
Endorsing a cheque: To endorse a cheque means to sign a cheque at the back. This is done
to transfer the right of payment to a third party.
Open cheque: A cheque, which is not crossed, that is, it does not have any parallel
lines on it.
Order cheque: This is a cheque made payable to a named person or organisation.
Post- dated cheque: A cheque to be cashed on a future date.

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Answers to Self-assessment Exercises

Self-assessment Exercise 1

Section A
1. B
2. A
3. D
4. D
5. A

Section B
1. Definition of money
Money is anything, which can be used to make payment or anything that can generally
be accepted as a medium of exchange and a means of settling debts.

2. Qualities of money
Money should be durable,
Money must be portable,
Money must be divisible,
Money must be easily recognized,
Money must be uniform in quality.

3. The goods and services will be expensive, as the prices will go up

and Customers will only buy basic needs which will lower their standards of living

4. Inflation therefore is defined as the general increase in prices of goods and services in
an economy and consequent fall in the purchasing value of money

5. Causes of inflation
Cost push inflation: Cost-push inflation occurs when manufacturers and businesses raise
prices as a result of shortages, or as a measure to balance other increases in production costs.
An example of this is raising labour costs. When workers demand wage increases, companies
usually pass on these costs to their customers.

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Demand pull inflation: This occurs when the demand for goods and services exceeds the
supply. In this instance the excess demand leads to an increase in the price of the under
supplied goods and services, that is too much money is chasing too few goods. Factors that
commonly lead to demand-pull inflation include a sudden increase in the amount of money in
an economy and decreases in taxes on goods, which leaves consumers with more disposable
income. Since people have more money to spend, manufacturers raise the general prices of
goods and services.
Other causes of inflation include wars, natural disasters, and decreases in natural
commodities. Wars often result in this situation, as governments must recoup the money spent
on them, and repay the funds borrowed from Central Banks. Wars also affect international
trading labour costs, and product demand, resulting in a rise in prices. Natural disasters may
have a similar effect by disrupting the usual cycle of the production process. This creates a
temporary scarcity as people scramble to purchase the limited supply of goods, causing the
prices to skyrocket.
Political instability can also be said to be cause of inflation although it can be said to fall
under the two major causes of inflation. If a country faces some political problems such as
strikes, war this tends to affect the economy of a country and this may even make prices of
goods and services higher.

6. Effects of inflation
Those that benefit from inflation are:
• Borrowers of funds as the real value of repayments falls over time, all else being
equal
• Holders of real assets such as property and land whose value can keep pace with the
rising price level

• Workers who have market power and are able to increase their wages in line with the
rising price level and so protect the purchasing power of their incomes.

Those that lose out in times of inflation are:

• Lenders of money who find that the repayments now have reduced purchasing power,
all else being equal

• Individuals who have fixed interest investments will lose out as the rising price level
erodes the real rate of return they are receiving.

• Similarly those individuals that hold cash investments will also lose out, as cash does
not increase in value as well as other assets.

• Workers whose incomes do not keep pace with the rate of inflation, and hence the
purchasing power of their income has fallen.

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Self-assessment Exercise 2
Section A
1. D
2. C
3. B
4. B
5. C

Section B
1.
(a)
• Central Bank do not open accounts for individuals, companies or businesses while
commercial banks allows customers to open different accounts such as current ac-
counts, savings and fixed deposit accounts.
• Central Bank is owned by the government while commercial banks are owned by
individuals.
(b) National Development Banks provide a long - term capital for agricultural, commercial
and industrial sectors .This type of banks usually get funds from the government.
Savings Bank: This type of bank assists small savers to save their surplus money.

2. Three features of a current account that makes it different from the other bank accounts
• Provides the account holder with immediate access to cash, that is money can be
withdrawn anytime without any restriction.
• Allows customers to use cheque and ATM.
• Customers are kept up to date with their finances thorough regular bank
statements.
• Provides facilities such as overdrafts, standing order, direct debits for making
payments.
3. Functions of commercial banks
• Keeps money safe
• Accepts deposits on behalf of customers.
• Deal with foreign currencies.
• Offer loans / overdrafts to their customers
• Give advice to the customers
• Help customers to make and receive payments

When a customer is a current holder the bank can make payments in different ways. The
bank can help individuals make payments in the following ways:

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4. Benefits of using a fixed deposit account

Enables customers to select a period suitable to their needs
Customers enjoy high interest rate
It is a secure form of investment

Self-assessment Exercise 3
1. When you endorse a check, you sign it on the back. This gives the bank permission to
give you cash for the cheque. It proves that you are the person the check is payable to.
The bank will then give you money.
2. Uses of an ATM
• accepting deposits
• transferring money from one account to another
• Issuing mini statements and even accept orders for cheque books or full
statements.
• Withdrawing money
• Paying at POS
3. Disadvantages of using ATM card
• Card can be lost.
• Account holders must always remember their PIN in order to operate the
machine.
• Sometimes there will be no electricity and therefore you cannot get the services
from the machines.
Sometimes the machines may be out of order simply because they are out of cash.
There is a limit on the daily withdrawals by ATM cards

4. Define the following;

(a) Open cheque
A cheque which is not crossed, that is, it does not have any parallel lines on it
(b) Crossed cheque
(c) A cheque which has got two parallel lines down the face of the cheque. The
purpose of crossing a cheque is to ensure that it is deposited into a bank account
and not cashed across the counter. A crossed cheque is therefore safer.

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JC: Commerce and Accounting Unit 13

5.

6. Advantages of using a cheque

• Cheques are safer and more convenient. That is it reduces the risk of carrying
large sums of money around.
• Cheques are numbered, so that they can be traced if lost or stolen.
• Cheques can be safely sent by post especially when it is crossed.
• The money stays in the bank until a cheque is cashed.
• The cheque stab that remains with in the chequebook provides a record of
payments made.
• Payments may be stopped if necessary, as the drawer will simply write a written
instruction to the bank.

Disadvantages of using a cheque

• Sometimes the information on the cheque can be altered and enable people to
steal and cash the cheque.
• Sometimes there will be insufficient money in the drawer’s bank account and this
can cause inconvenience to the payee.
• Cheques are not practical for small debts. For example, when paying a bus fare or
buying airtime.
• Some people do not have bank accounts, so paying them by a crossed cheque may
inconvenience them
• Banks charge a fee for issuing cheque books and charges each transaction
involving a cheque.

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JC: Commerce and Accounting Unit 13

References

Curriculum Development Division, Ministry of Education, (2004), Business Studies A

Practical Course Book 2, Longman Botswana, Gaborone.

Harrison. J, (1996), Office Procedures, 4th ed, Longman, London.

Matindike. G, (2001), Focus on Commerce. New edition, College Press, Harare

Wokorach. J.B, (2009), Commerce: A Complete Course, 5th ed, Salama Publishers,
Mochudi

http://www.bankinginfo.com.

http://www.businessdictionary.com/definition/standing-order.html#ixzz2KIe9TeNM

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