Some Special Banking Transactions

            Some Special Banking Transactions

 1. When Cash Is Deposited Into The Bank

If cash is deposited into the bank, there will be decrease in our cash balance and increase in the bank balance.

The following entry will be made:

Bank A/c.............................................Dr.XX

            Cash A/c..............................................XX

2. When Cash Is Withdrawn From The Bank

Cash may be withdrawn from the bank for the following purposes:

(a) For Business Use:

If cash is withdrawn from the bank for business purposes, there will be increase in cash balance and decrease in bank balance.

The following entry will be passed:

Cash A/c..................................................Dr.XX

        Bank A/c..............................................XX

(b) For The Private Use Of the Owner:

If cash is withdrawn from bank for the personal use of the owner, 

The following entry will be made:

Drawing A/c...........................................Dr.XX

        Bank A/c.............................................XX.

3. Direct Deposit By A Debtor To The Bank

Sometimes, the debtor instead of playing money to us, directly deposit it to our bank account. Suppose on 10.9.2015, our debtor Mr. Hafeez has deposited Rs. 5,000 direct to our bank account.

The following entry will be passed:

Bank A/c................................................Dr.XX

       Mr. Hafeez A/c.....................................XX.

             (Being amount deposited into the bank)

4.Stopping Payment Of Cheque Issued

After issuing a cheque to a creditor we may stop its  payment for certain reason. In that case we should issue instructions to the bank. This instruction is known as  "Stop order". On receiving the stop order the bank will not honour the cheque if presented by the creditor and the entry passed on issuing the cheque will be reversed. Suppose on 1.1.2015 we issue a cheque for Rs. 5000 to our creditor Mr Faisal and on 2.1.2015 we stop order for the cheque.
The following entry will be passed:

1.1.2015
Mr. Faisal A/c..................................................Dr.XX
        Bank A/c............................................................XX
                         
                          (being cheque issued) 

12.1.2015
Bank A/c...........................................................Dr.XX
       Mr. Faisal A/c.....................................................XX

                   (being payment of cheque stopped)

Note:

Stop order will not be effective, If the bank has paid the cheque before receiving such orders. In case a cheque is lost or stolen, stop order is issued to the bank before somebody find it and get it cashed.

5.Bank Charges Or Incidental Charges

Bank deduct certain amount from our Bank A/c for services rended by it to us .

The following entry will be passed:

Bank Charges A/c.................................................Dr. XX

          Bank A/c...............................................................XX.

Note:

The entries shows increase in bank and decrease in bank balance.

6.Bank Interest:

Bank allows us interest at a fixed rate on the amount lying deposite in Bank A/c. This interest not paid in cash rather it is credited to our account (Transferred to our account).

The following entry will be passed:

Bank A/c.........................................................Dr. XX

       Interest A/c........................................................XX

 Note:

The entry shows increase in our bank balance and increase in our revenue.

7.Standing Orders

Sometimes the bank pays some expenses on our behalf on fixed dates i.e. insurance premium house rent. office rent etc. as per our instructions. For example, the bank pays insurance premium Rs. 1000 as per our instructions on 30.6.2005. 

The entry will be :

3.6.2005

Insurance premium................................................Dr.XX

         Bank A/c..............................................................XX

Again on certain occasions the bank collects dividend on shares, interest on Government securities held by us and credit the amount to our account.

The entry will be:

Bank A/c....................................................................Dr XX

          Dividend A/c..............................................................XX

8.Interest On Overdraft

Generally the bank does not allow withdrawal of money in excess of deposit. But sometimes the bank may allow  such withdrawal in special cases for the sake of depositor's goodwill. In that case our bank A/c will show credit balance and we will become the debtor of bank. Bank charges interest at fixed rate on the excess money(on overdraft ).

The following entry will be pass:

Interest A/c............................................................Dr.XX
       Bank A/c................................................................XX.

Note:

This entry shows increase in our expense and decrease in our bank balance (or increase in our overdraft balance).