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Financial accounting notes

BANK:-
A bank is an institution, which deals in money and credit. A bank receives
deposits, lands money, makes collections and renders many others services.

KINDS OF BANK:-
The important kinds of bank are:
 Central or State Bank
 Commercial bank
 Exchange Banks
 Industrial banks
 Saving Banks
 Agricultural Banks
 Co-operative Banks
 Investment Banks.

FUNCTIONS OF A BANK:-
Bank renders following types of functions:

PRIMARY FUNCTIONS:-
a) Banks accepts money deposits from the public.
b) Banks lend money to people and obtain interest on it.
c) Banks remit money to any part of the country and outside the country.
d) Banks collect the proceeds of the both local and outstation checks.

AGENCY SERVICES:-
Bank renders services as an agent of customers.
a) Collection of bills, salaries, pensions, dividends and promissory notes etc.
b) Banks undertake to make payments in respect of subscriptions, insurance
premium, shares and other securities.
c) Banks undertake to purchase and sell debentures, bonds, shares and other
securities.
d) A bank also acts as a trustee and administrator of immovable property.

MISCELLANEOUS SERVICES:-
a) Bank accepts jewellery, important documents and other valuables for safe
custody.
b) Banks deals in foreign exchange.
c) Bank issue commercial letters of credit for facilitating and financing foreign
trade.

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Financial accounting notes

CHECK:-
The check is the written order by which the customer (account holder)
requires to draw money from he bank. They also serve as the proof of payment. A
check is a piece of commercial paper drawn on a bank and payable on demand.

KINDS OF CHECKS:
 Open check
 Blank check
 Bearer check
 Order check
 Crossed check
 Past-Dated check

CHECK BOOK:-
A book containing some blank checks to a page, perforated so that they may
be removed singly. To the left of each check is a check sub. The depositor’s name and
address are printed on each check and the “MICR” numbers are shown on the bottom
edge.

PARTIES TO THE CHECK:


There are three parties to a check:
a) THE DRAWER is a person on whose signatures the check is paid to its hold.
b) THE DRAWEE is the bank which is ordered by the drawer of the check to pay
the amount stated in the check on demand.
c) THE PAYEE is person who receives the payment of the check from the bank.

DISHONOR OF CHECK:
Checks are sometimes returned unpaid for certain reasons. It is called
“dishonor of check”. Check may be dishonored because of following reasons:
a) Insufficient funds in customers account.
b) When the amounts in words and figures differ.
c) When signatures differ.
d) If payment is stopped by drawer.
e) When an out dated check is presented at the counter.
f) When the drawer becomes bankrupt; on receiving such information.
g) When crossed check is presented at the counter.
h) Notice of the drawer’s death received by the bank.
i) Alternations made in the check if not signed by the drawer.

BANK DRAFT:-
It is a check drawn by one bank on another branch of the same bank situated
at a different town payable on demand.

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Financial accounting notes

BANK CHARGES:-
The charges made by the bank for services rendered to its customers are
called “Bank Charges”, e-g bank commission or bank services fees.

BANK RECONCILIATION STATEMENT:-


The balance at bank shown by the depositor’s record must agree with the
balance shown by the bank statement. But the balances of both the records seldom
agree. So a statement is prepared to find out the reasons for disagreement between
the two records. The statement prepared for this purpose is called a “Bank
Reconciliation Statement”. In simple words, “Bank Reconciliation Statement is a
report which shows the differences in our record (Business Record) and the record
of the Bank”. It is usually prepared at the end of a particular period, i.e. one month.

REASONS TO PREPARE BANK RECONCILIATION STATEMENT:


a) Check(s) issued but not yet presented for payment in the bank.
b) Check(s) deposited in the bank but not yet cleared or credited in the bank record.
c) Amount debited in the bank but not yet posted in our cash/bank book.
d) Amount credited in the bank but not yet posted in our cash/bank book.

OBJECTIVES OF BANK RECONCILIATION STATEMENT:


The objectives of preparing reconciliation statement may be stated as under:
a) To know the correct bank balance.
b) To record correct balance of cash at bank in the trial balance and the balance
sheet.
c) To make necessary adjustments prior to the end of the term.
d) To find out the errors if any and to correct them in time.
e) For the completion of cash records.
f) To verify the payments made through checks.
g) To know the amount of checks and drafts collected.

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