Lesson 15 - Accounting

by

Christopher Tharaka
 Lets see about cash in a business
A business can have its cash in two methods

Business can keep cash in the business premises as Business can keep cash in the bank in their bank
notes and coins account
Business would maintain 2 A/Cs for cash
Cash in hand Cash at bank

Cash Bank

Increase is Dabit Decrease is Creadit Increase is Dabit Decrease is Credit

Both Cash in Hand and Cash at Bank are assests. Therefore both accounts are working on same double entry rules.
Let’s see how accounting equation affecting
by business activities
• 01/02/2022 open a bank account by depositing $5,000/-
Equation Capital + Liabilities + Income = Assets + Expenses
Increase/Decrease Debit

Credit

Cash Bank

01/02/2022 Bank $5,000 01/02/2022 Cash $5,000

Types of bank accounts
• Savings account

• Current account

• Salary account

• Fixed deposit account

• Recurring deposit account

Types of bank accounts
Savings account

A savings bank account is a regular deposit account, where you earn a minimum rate of interest.

Here, the number of transactions you can make each month is capped.

Banks offer a variety of Savings Accounts based on the type of depositor, features of the product, age or purpose
of holding the account, and so on.

There are regular savings accounts, savings accounts for children, senior citizens or women, institutional savings
accounts, family savings accounts, and so many more.

You have the option to pick from a range of savings products. There are zero-balance savings accounts and also
advanced ones with features like auto sweep, debit cards, bill payments and cross-product benefits.
Types of bank accounts
Current account

A current account is a deposit account for traders, business owners, and entrepreneurs, who need to make
and receive payments more often than others.

These accounts hold more liquid deposits with no limit on the number of transactions per day.

Current accounts allow overdraft facility, that is withdrawing more than what is currently available in the
account.

Also, unlike savings accounts, where you earn some interest, these are zero-interest bearing accounts.

You need to maintain a minimum balance to be able to operate current accounts.

Types of bank accounts
Salary account

Among the different types of bank accounts, your salary account is the one you have opened as per the tie-up
between your employer and the bank.

This is the account, where salaries of every employee are credited to at the beginning of the pay cycle.

Employees can pick their type of salary account based on the features they want.

The bank, where you have a salary account, also maintains reimbursement accounts; this is where your
allowances and reimbursements are credited to.
Types of bank accounts
Fixed deposit account

To park your funds and earn a decent rate of interest on it, there are different types of accounts like fixed
deposits and recurring deposits.

A fixed deposit (FD) account allows you to earn a fixed rate of interest for keeping a certain sum of money locked
in for a given time, that is until the FD matures.

FDs range between a maturity period of seven days to 10 years.

The rate of interest you earn on FDs will vary depending on the tenure of the FD. Generally, you cannot withdraw
money from an FD before it matures.

Some banks offer a premature withdrawal facility. But in that case, the interest rate you earn is lower.
Types of bank accounts
Recurring deposit account

A recurring deposit (RD) has a fixed tenure.

You need to invest a fixed sum of money in it regularly -- every month or once a quarter -- to earn interest.

Unlike FDs, where you need to make a lump sum deposit, the sum you need to invest here is smaller and
more frequent.

You cannot change the tenure of the RD and the amount to be invested each month or quarter.

Even in the case of RDs, you face a penalty in the form of a lower interest rate for premature withdrawal. The
maturity period of an RD could range between six months to 10 years.
Cheques
A cheque is a document you can issue to your bank, directing it to pay the specified sum mentioned
in digits as well as words to the person whose name is borne on the cheque.

Cheques are also called negotiable instruments. In banking terms, a negotiable instrument is a
document that promises its bearer a payment of the specified amount either on furnishing the
document to the banker or by a given date.

We offer a variety of current/cheque accounts, fixed deposits and savings account designed to suit
your personal banking needs.

The issuing party is called the drawer of the cheque, and the one it is issued to or put simply, whose
name is mentioned on the cheque is the drawer.
What are the types of cheques?
• Bearer Cheque

• Order Cheque

• Crossed Cheque

• Post-Dated Cheque

• Banker’s Cheque
Types of cheques
Bearer Cheque

A bearer cheque is the one in which the payment is made to the person bearing or carrying the cheque.

These cheques are transferable by delivery, that is, if you are carrying the cheque to the bank, you can be
issued the payment to.

The banks need no other authorisation from the issuer to be allowed to make the payment.

How can you identify a bearer cheque? You know it is a bearer cheque when you see the words ‘or bearer’
printed on them.
Types of cheques
Bearer Cheque
Types of cheques
Order Cheque

In these cheques, the words ‘or bearer’ is canceled.

Such cheques can only be issued to the person whose name is mentioned on the cheque, and the bank will do
its background check to authenticate the cheque bearer’s identity before releasing the payment.
Types of cheques
Order Cheque
Types of cheques
Crossed Cheque

You may have observed cheques with two sloping parallel lines with the words ‘a/c payee’ written on the top
left.

That is a crossed cheque.

The lines ensure that irrespective of who presents the cheque, the payment will only be made to the
individual whose name is written on the cheque, in other words, the a/c payee along with his/her account
number.

These cheques are relatively safe because they can be encashed only at the drawee’s bank.
Types of cheques
Crossed Cheque
Types of cheques
Post-Dated Cheque

These types of cheques bear a later date of being encashed.

Even if the bearer presents this cheque to the bank immediately after getting it, the bank will only process the
payment on the date mentioned in the cheque.

This cheque stands valid past the mentioned date, but not before.
Types of cheques
Banker’s Cheque

A bank is the issuer of these types of cheques.

The bank issues these cheques on behalf of an account holder to make a remittance to another person in the same
city.

Here the specified amount is debited from the account of the customer, and then, the cheque is issued by the bank.

This is the reason banker’s cheques are called non-negotiable instruments as there is no room for banks to dishonour
these cheques.

They are valid for three months. They can be re validated provided specific conditions are met.
Returned check
What is a Returned Check?

A returned check is a check that is not paid by the financial institution on which it was drawn.

The usual reason for a returned check is that the account on which it was drawn does not contain enough
funds to pay for the full amount of the check.
Returned check
Other reasons for a returned check are as follows:

• The check is drawn on a foreign account

• The check has been disfigured

• The check contains a mismatch between the numeric and written amount to be paid

• The check was presented for payment too long after the check date

• The check maker issued a stop payment order that blocks payment on the check

• The checking account on which the check was drawn was closed
Let’s see how accounting equation affecting
by business activities
• 01/02/2022 issued a cheq for CMC Group for $3,200/-
Equation Capital + Liabilities + Income = Assets + Expenses
Increase/Decrease Debit Credit

CMC Group Bank

01/02/2022 Bank $3,200 01/02/2022 CMC Group $3,200

Let’s see how accounting equation affecting
by business activities
• 20/02/2022 cheque returned for CMC Group for $3,200/-
Equation Capital + Liabilities + Income = Assets + Expenses
Increase/Decrease Credit Debit

CMC Group Bank

20/02/2022 Bank $3,200 20/02/2022 CMC Group $3,200