Chapter 5: Cash and bank Flashcards
What is a bank?
a licensed financial institution where the public can deposit and borrow money. A bank’s services include safekeeping savings deposits and providing loan facilities.
3 types of banking institutions
- retail banks
- investment banks,
- central banks
Retail banks offer…& services are…
offer a wide array of services for individuals and businesses alike.
Their services to clients include (not exhaustive):
- providing individuals or businesses with bank accounts to deposit money
- issuing loans, overdraft facilities or credit cards facilities
- making payments to organisations in other countries
- supplying financial insurance
Investment bank
is part of corporate or commercial banking that provides services for a fee. Investment banks usually focus on businesses instead of individual clients.
Their services to clients include (not exhaustive):
- providing advisory services on stock market fluctuations and mergers and acquisitions
- trading financial instruments such as bonds, derivatives, and shares for clients or profit.
- Arranging capital raising and initial public offering (IPO) for corporate clients
A central bank
is an institution that exists within a country to manage a country’s money supply and ensure financial stability. Central banks provide financial services for their government and other commercial banking systems.
Central banks oversee other commercial banking institutions and act as ‘the bankers’ bank’ by lending banks money if they need a short-term loan.
A country’s central bank implements the government’s monetary policy and sets the currency rate on a particular day.
The Bank of England is the United Kingdom’s (UK) central bank, while the Federal Reserve is for the United States of America (USA).
Types of business bank accounts
Current accounts, Savings accounts, Overdraft account
Current Accounts
A business may hold a current account in a bank, which facilitates receipts and payments for business activities.
A current account pays a low rate of interest or none at all. Thus, keeping savings or large amounts of money is not advisable.
Savings accounts
A business usually keeps its surplus funds (any extra money) in a savings account. A savings account pays a higher interest than a current account.
Overdraft account
An overdraft provides access to cash for short-term needs with interest charged on balance owed.
The maximum available funds in the overdraft account and applicable bank charges are agreed upon with the bank before the issue of the overdraft facility.
Overdraft balances are often repayable on demand, which might occur if the bank decides that the business’s default risk is unacceptable.
Cash payments.
There are different ways a business can receive money from customers and make payments to our suppliers, such as:
- cash payments
- cheque payments
- EFTPOS payments - credit or debit card
- Electronic Bank Transfers - standing order, direct debit or direct credit
Customers may pay for goods or services of a business by cash. A business may also pay their pay suppliers similarly for any purchases made
Cash receipt. a RECEIPT is
a financial document that confirms a cash receipt/payment has been made in exchange for goods or services.
A business may prescribe different types of cash receipts depending on the nature of the transaction, such as:
A Till receipt
- is generated from the cash register. A till with a paper roll will print individual receipts after successful payment.
At the start of the day, the cash register will contain a float amount. The float is used to give the customers change.
A manual receipt
- is a pre-printed template form that the seller fills up by pen once payment is successful. The pre-printed receipt form can be bought from most stationary shops.
Cash payment security measures
When receiving a cash payment, a business should:
- Cheque if the banknote received is genuine or fake using a fake currency detection machine
- Store excess cash in a safe during the day. Only leave the amount needed for business operations in the till (cash register).
- A SAFE is a large storage box that protects valuable items such as cash against theft. A safe kept in an office should be lockable and have limited access. To open the safe, a unique code or a key is needed
- Deposit the excess cash in the bank at the end of each day so that only small amounts of money are kept on the business premises.
When depositing cash at a bank, ensure the time and route taken to the bank each day is varied to deter potential thieves from predicting movements. - If possible, more than one person should be sent to the bank. Larger businesses can arrange for security companies to collect the cash directly from their building to the bank.
The cash deposits will be accompanied by filling a PAYING-IN SLIP from the paying-in book provided by the bank. The paying-in slip confirms the amount deposited into the bank account.
Cheque payment. A cheque is..
a written instruction from the drawer/payer to their bank to pay the payee a sum of money from the drawer’s account.
The Bank provides each business bank account with a cheque book. Cheques are individually detached, and a cheque stub is left in the book. The cheque stub is a supporting document as it contains details of the payment, such as the payee’s name, the date and the amount paid.
A business may receive or make payments using cheques
Cheque Requisition Form
A business bookkeeper will first receive the purchase invoice from the payee supplier to issue a cheque payment.
However, businesses may issue cheques before purchase invoices have been received. a business may issue cheques to organisations that do not provide invoices. the bookeeper raises a CHEQUE REQUISITION FORM as financial documentation evidence in such cases
Scenarios examples where Cheque Requisition Forms are raised include:
- Charities who do not request payment. Therefore, donations to charities by cheque might not have an invoice.
- Deposits for hiring a venue or renting a piece of equipment might not be invoiced until the total amount of the invoice is charged.
- Advances to travelling employees who may have to incur expenses before claiming the money back.
The cheque requisition form will include the date, payee, amount, signature of the person authorising payment, and any backing documentation