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What are we going to learn today?
• Dishonoured cheques and treatment in Cash Book
• Bank loan• Bank overdraft
A cheque is an order to the bank to pay some other person a fixed sum of money on demand.
Bobby TanDollars Fifty only
50/=
A specimen cheque
A dishonoured cheque
Reasons for cheques being dishonoured:(a) signature not the same as the specimen given;
(b) insufficient funds;
(c) amount in words and in figures not the same;
(d) cheque post-dated
(e) signature missing;
(f) incomplete particulars, etc..
Dishonoured cheque
Example 1March 1 Joe owed you from sales $500 3 Joe gave a cheque of $500 5 Joe’s cheque was dishonoured by the bank.
Record the entries into the Cash Book and ledger.
2002Mar 3 Joe 500
2002Mar 5 Joe 500
AmountParticularsDateAmountParticularsDate
Dr Cr
2002 $ 2002 $
Joe
Mar 1 Sales 500 Mar 3 Bank 500
Mar 5 Bank 500
Date BankCashDiscountParticularsDateBankCashDiscountParticulars
Cash BookDr (IN) Cr (OUT)
Dishonoured cheque
Exercise March 1 James owed you from sales $150 7 James gave a cheque of $120 in full settlement of his account. Discount allowed $30 9 Jame’s cheque was dishonoured by the bank.
Record the entries into the Cash Book and ledgers.
Bank Loan• a certain sum of money borrowed from the bank
Accounting entries:
Dr Bank Account XXCr Bank Loan XX
Bank LoanExample: On May 1, we borrowed $10000 from the bank. We put the money into our bank account.
BankCashDiscountParticularsDateBankCashDiscountParticularsDate
Cash BookDr Cr
2002May 1 Bank loan 10000
So when does it have a credit balance?
Usually, bank account has a debit balance.
When we draw on the bank overdraft facility.
Example 1 – Bank Overdraft
2002Jan 1 Christine’s Bank account in the cash book
shows a debit balance of $500. She has an overdraft facility of $10 000.
Jan 10 Christine bought an office equipment for $4 000 and paid by cheque.
How much is Christine drawing on her overdraft facility?
Is the bank account showing a debit or credit balance?
Cr
$$$2002$$$2002
BankCashDiscountParticularsDateBankCashDiscountParticularsDateCash BookDr
Jan 1 Bal b/d 500 Jan 10 Office
Equipment 4000
Note:
Christine is drawing $3500 on her bank overdraft facility. Christine’s bank account has a credit balance.
She can continue to draw from her current account as long as the total credit amount does not exceed $10 000.
The overdraft facility limit is not to be recorded in the Cash Book.
31 Bal c/d 3500