Chapter 3

Accounting for cash and checks

operations in a bank
First: Cash operations
Banks receive and maintain and invest customers' money–
individuals and institutions- in various types of account, like
current account where there is no interest paid on the money
deposited while money available for withdrawing at any time,
whereas time and demand accounts have specific conditions or
arrangements for withdrawal in sake of customers' receiving
interests.

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Customers' current accounts and deposits are
all liability to the bank. So when customers put
money into his/her account, this is recorded in
the bank's books as:

Dr. Cash
Cr. Customer's current (saving) account

When customers withdraw from their accounts,

the bank records:

Dr. Customer's current (saving) account

Cr. Cash

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A branch of United Bank had the following
transactions in May 2020 (amounts in EGP):

- The bank received Cash deposits 580,000

where 3/4 made to current accounts and
the remaining to saving accounts. There
are also deposits in US dollar equals
300,000 and in Euro240,000.
- The customers withdraw 140,000 from
current accounts and 160,000 from
savings and other interest-bearing
accounts.

1 Record these transactions in the banks'

books.
2 Show the effects on financial statements
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Dr. Cash 435,000
Cr. Customer's currents acc. 435,000

Dr. Cash 145,000

Cr. Customers' saving accounts 145,000

Dr. Cash –US Dollar 300,000 Cr.

Customer's currents acc. 300,000

Dr. Cash –Euro 240,000

Cr. Customer's current acc. 240,000

Dr. Customer's current acc. 140,000

Cr. Cash 140,000

Dr. Customer's savings acc. 160,000

Cr. Cash 160,000

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When the transfer is between a main treasury and a
subsidiary:

When money collected by a small branch, after a specific limit,

it transfers the excess to a main treasury
Ex. If Bank Du Caire has a policy to transfer excess cash of a
specific limit possessed by a branch, to the main treasury at
the end of the week. Assume this amount reached EGP 130m.

The bank transferred by the entry:

Dr. Main treasury EGP 130m
Cr. Cash EGP
130m

Since the main treasury and the branch are two units belong
to the same bank, it is considered an internal transfer and the
account of "main treasury" represents cash available for use
by the branch. This account is an asset to the branch.

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Transferring cash to and getting from Central
Bank:
Banking regulations may require that banks should transfer
amounts of its cash to the central bank, either to support its
deposit there or to maintain for emergency. These issues are
stated by the regulations from the central bank.
Ex.:
Bank Du Caire has a policy to transfer excess cash of a specific
limit to its account in the central bank. In a month, the amount
reached EGP 226m. The bank transferred by the entry:
Dr. Central bank EGP 226m
Cr. Cash EGP 226m
In the next month, there was extra withdrawal by customers and
the bank sent a request to the central bank asking for 130m
cash and the latter responded. Upon receiving of cash, Bank du
Caire records:
Dr. Cash EGP 130m
Cr. Central bank 7
EGP
130m
Second: Checks Operations & Clearance of checks

The bank issues the check book to the holder of specific

accounts who will then issue from it to others to allow them
to withdraw money from his/her accounts. The bank will
execute his customers order by receiving the check and
giving the money to the recipient.

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First Case:
The customers of Tamweel Bank deposited checks
drawn for their interest on customers in the same bank
equals 24m and the banks deducted commission 40,000.

When receiving checks:

Dr. Customers' current acc. (the debtors) 24,000,000
Cr. Customers' current acc. (the creditors)
23,960,000
Cr. Commission income
40,000

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Ex.:

The customers of Tamweel Bank issued checks

of 36m for people who do not have accounts (one
of them is a customer) in Tamweel bank and
they collects the value in cash.

When the people submit the checks to Tamweel

bank to clear:

Dr. Customers' current acc. 36m

Cr. Cash 36m

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Second Case:

Let's change the assumption and take the case when customers of
Tamweel Bank deposited checks drawn for their interest on customers
in another bank equals 24m and the bank deducted commission
40,000.
When receiving checks:
Dr. Collection Checks 24m
Cr. Depositors of Collection Checks 24m
Dr. Customer current acc. 40,000
Cr. Commission income 40,000

If the checks sent for clearance returned back un-cleared because

no sufficient fund or mistake or any other reasons, Tamweel will
reverse the first journal entry which it made upon receiving the check
and will notify his/her customer by the situation:

Dr. Depositor Collection Checks 24m

Cr. Collection Checks 24m

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Misr bank made the following transactions during March
2020 Related to current acc. division.
1. A customer deposits on credit current by check
drawing on other banks L.E. 50,000, the commission of
collected L.E. 500, and the bank collected it through the
clearing house.
2. A customer deposits L.E. 7000 cash
3. A customer cashes L.E. 2,400 check drawn on the same
bank
4. A customer requested the bank to wire transfer L.E
11,000 to another bank and withdraw the money from his
current account in this another bank.
5.The accrued interest on credit current account was L.E.
3000 and Accrued interest on debit current account was
L.E. 2000 added or deducted to the customers accounts.

Required: Journalize the entries in central journal

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1- Collection Checks 50000
Depositors Collection Checks 50000
)Received checks and make a contra entry)

Clearing House 50000 Customers

Current Account Commission for 49500
collection Checks 500
)Collection the checks through clearing
house(
Depositors Collection Checks 50000
Collection Checks 50000
)Reverse the contra entry(

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3- Cash 7000
Customer Current Account 7000 )
Deposit cash for current accounts(

3- Customer Current 2400

Account Cash 2400
(Cashed checks(

4- Customer Current Account 1100

Another Bank 0 1100
(Transfer to another bank( 0

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5- Interest payable 3000
Current Account (Cash( 3000
)Paid the debit interest(

Debited Current Account (Cash) 2000

Interest Receivable 2000
)collected the credit interest(

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