Chapter 6 Banking Transactions

What is Bank Finance is the life blood of trade, commerce and industry. Now-a-days, banking sector acts as the backbone of modern business. Development of any country mainly depends upon the banking system. The term bank is either derived from old Italian word banca or from a French word banque both mean a Bench or money exchange table. In olden days, European money lenders or money changers used to display (show) coins of different countries in big heaps (quantity) on benches or tables for the purpose of lending or exchanging. A bank is a financial institution which deals with deposits and advances and other related services. It receives money from those who want to save in the form of deposits and it lends money to those who need it.

What is Bank According to CainCross: Bank is financial intermediary, a dealer in loans and debts” According to the Banking Ordinance 1962 “Banking means accepting for the purpose of lending or investing of deposits of money form the public repayable in demand or otherwise and withdraw able by cheque, draft or otherwise”.

Features of Banks Dealing in Money Bank is a financial institution which deals with other people's money i.e. money given by depositors. Individual / Firm / Company A bank may be a person, firm or a company. A banking company means a company which is in the business of banking.

Features of Banks Acceptance of Deposit A bank accepts money from the people in the form of deposits which are usually repayable on demand or after the expiry of a fixed period. It gives safety to the deposits of its customers. It also acts as a custodian of funds of its customers Giving Advances A bank lends out money in the form of loans to those who require it for different purposes.

Features of Banks Payment and Withdrawal A bank provides easy payment and withdrawal facility to its customers in the form of cheques and drafts, It also brings bank money in circulation. This money is in the form of cheques, drafts, etc

Kinds of Bank Accounts There are several types of bank accounts such as: Profit & Loss Account Fixed Deposit Account Current Account So a decision regarding the type of account to be opened must be taken.

Kinds of Bank Accounts Profit & Loss Account: In this account a nominal rate of interest is paid by the bank because depositor can withdraw his money subject to some conditions of bank. This type of account is opened by salaried person because this account is helpful for them not only to save money but also to earn some interest.

Kinds of Bank Accounts Current Account: In this type of account, bank offers no interest as the depositor can withdraw his amount an any time. This type of account is normally opened by business class because they have to make various payments and this is the safest mode

Kinds of Bank Accounts Fixed Deposit Account: In this type of account highest rate of interest is offered as the depositor has to deposit the money for a certain period of time. It means the depositor cannot withdraw his money without giving a reasonable notice. This type of account is opened by rich peoples as they have extra money money to invest and they can wait for a long period of time to earn higher rate of interest.

Kinds of Bank Accounts Pay in Slips: Whenever customer want to deposit an amount, he has to fill a document which is called pay-in-slip. ATM: Now a days with development of technology. ATM card are also used to withdraw a certain amount of money at any time from any ATM machine.

What is Cheque and its Kinds Cheque Book: Cheque book is also provided by bank to withdraw amount from the bank. Kinds of Cheque: Bearer Cheque Order Cheque Crossed Cheque

Reasons for Dishonour of Cheque Not sufficient fund In complete signature Date not mentioned Overwriting Amount in figures & word different. Outdated cheque Mutilated cheque

Facilities offered by Bank Overdraft Facility: If the depositor is in immediate need of money, he can take amount from the bank as loan. The bank charges interest on the amount withdrawn by its customers. Bank Draft: Bank also gives the facility to its customer to transfer money from one place to another through draft facility.

Recording of Banking Transactions When amount is deposited into the bank When amount is withdrawn from the bank When cheque is received from a customer and is deposited on the same day. When cheque is received from a customer and not deposited on the same day. When amount is withdrawn from bank for business use. When amount is withdrawn from bank for personal use.

Recording of Banking Transactions 7. When services charges deducted by the bank. 8. When interest allowed by the bank. 9. When interest on overdraft charged by the bank.