Dishonoured cheques

Question 1

What happens when a business receives a cheque from its customer?

Answer 1

It records the collection in its cash at bank account. Then it will deposit the cheque with its bank and will expect to receive the amount stated on the cheque.

Question 2

What can sometimes happen after the cheque is deposited?

Answer 2

The bank informs that the cheque is dishonoured or rejected and the business will not receive any money.

Question 3

Define ‘drawer’ of the cheque.

Answer 3

The party who issues or writes the cheque.

Question 4

Define ‘payee’ of the cheque.

Answer 4

The party who receives the cheque.

Question 5

What must a cheque bear and state?

Answer 5

a. date
b. the party whom the amount is paid to (known as payee)
c. the amount to be paid.
d. signature of the party who issues the cheque (known as a drawer)

Question 6

Give reasons why cheques are rejected / dishonoured. (Read Page 75 for more details.)

Answer 6

1. The cheque has expired.
2. The cheque is post-dated.
3. The information on the cheque is incomplete.
4. The information on the cheque is inconsistent.
5. Insufficient funds in the bank account of the drawer of the cheque.
6. Drawer of the cheque’s bank account is closed.