CHEQUE-A SUBSTITUTE OF CASH

In today's business world a 'cheque' has become an important tool for the financial transactions.
:
Now the question arises ,what is a cheque??

In simple language,a cheque is an instrument in writing containing an order given by the drawer* to his banker(known as drawee) to pay a certain sum of money to the payee*.

*Drawer: person who has to pay the amount.
*Payee: person who has to receive the amount.On his name cheque is drawn.

Here it must be noted that cheque operates only when the transaction is  done through banks.

Now let's know about its 3 main types:

1.BEARER CHEQUE: 
These type of cheques are normally used for cash transactions.
In a bearer cheque  the word 'or bearer' is written on the face of the cheque.

This type of cheque is considered risky as the bank gives payment to the person holding the cheque at its counter .
If the cheque is lost and get in the wrong hands it can be misutilized.

*Nowadays banking system has become more aware and it demands id proof of the holder.

2.ORDER CHEQUE:

When the word 'bearer' appearing on the face of cheque is cancelled and in its place the word 'or order' is used ,the cheque is called order cheque.

Such a cheque is payable to the person specified therein or to any person to whom it is endorsed(or transferred).

*A cheque can be transferred to a third person by writing his name and details at the back of the cheque.

3.CROSSED CHEQUE:


It is the most commonly used type of cheque in business as it is the most secured.
Crossing of a cheque means drawing two parallel line on top left corner of the cheque with or without the additional words like 'a/c payee' or 'not negotiate'.

This type of cheque involves actions of 2 banks  -first of the drawer and second of the payee.

Here there is no cash payment ,the payment is made through bank accounts.
The amount can only be credited to the payee's account not to the bearer of the cheque.


Now let's understand it with the help of an illustration:
Suppose there is a company SUNSHINE LTD. which has to make a payment amounting to ₹100000 to its creditor named MESCO PVT LTD. and sunshine Ltd has its account in TURBO BANK.

For such payment instead of cash payment Sunshine Ltd opted for issuing a cheque so the company issued a crossed cheque amounting to ₹100000

Let's see its diagrammatic representation:

Now let's see how a transaction done by a cheque instead of cash is treated in accounts:
 Such type of  transaction is represented by  'Bank a/c'

IN THE BOOKS OF SUNSHINE LTD.
  MESCO Pvt Ltd    Dr.    100000
   To  Bank a/c                             100000



IN THE BOOKS OF MESCO PVT LTD.
      Bank a/c      Dr      100000     
    To sunshine Ltd                100000