7 Main Types of Non-Cash Bank Transactions

The following points highlight the seven main types of non-cash transactions. The types are: 1. Demand Drafts and Telegraphic Transfers 2. Travellers Cheques and Letters of Credit 3. Any Time Money (ATM) Cards have Made Traveller Cheques 4. Acceptances, Endorsements and Other Obligations 5. Bills for Collection 6. Bills Purchased and Discounted 7. Rebate on Bills Discounted.

Non-Cash Bank Transactions:

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1. Demand Drafts and Telegraphic Transfers
2. Travellers Cheques and Letters of Credit
3. Any Time Money (ATM) Cards have Made Traveller Cheques
4. Acceptances, Endorsements and Other Obligations
5. Bills for Collection
6. Bills Purchased and Discounted
7. Rebate on Bills Discounted

Non-Cash Bank Transactions: Type # 1.

Demand Drafts and Telegraphic Transfers:

People find demand drafts and telegraphic transfers to be safe vehicles of transmitting money specially to distant place; telegraphic transfers being quicker. When a customer requests his bank to issue a demand draft in favour of the party to whom he wants to make payment, he has to pay to the bank the amount of the demand draft and the bank charges for the service.

The demand draft is drawn on the appropriate branch of the bank which is required to make the payment. If the bank issuing the demand draft does not have its own branch at the desired place, it may draw the demand draft on another bank having a branch there if there is an agreement for this purpose with that bank.

The customer sends the demand draft to the payee who collects the amount from the branch on which the demand draft has been drawn.

In a telegraphic transfer, the bank telegraphically informs the relevant branch to credit the requisite amount to the account of the payee, making the transmission of money rather quick.

Non-Cash Bank Transactions: Type # 2.

Travellers Cheques and Letters of Credit:

To avoid the risk of losing cash in travel, a customer while going on a travel may take with him travellers cheques rather than cash. The customer pays to the bank the amount for which he wants travellers cheques to be issued.

The bank issues travellers cheques of the desired denominations, crediting Travellers Cheques Account. Every cheque carries the specimen signatures of the customer. Travellers cheques can be en-cashed at the different branches of the bank.

To en-cash a travellers cheque, the customer has to sign the cheque again; the signatures must tally with the specimen signatures on the travellers cheque. The customer may present the unused cheques for cancellation; he will get back the full amount of the cheques cancelled.

The bank may even pay interest in respect of the travellers cheques for the period for which the amounts have remained with it before payment. On payment, the bank debits Travellers Cheques Account.

Non-Cash Bank Transactions: Type # 3.

Any Time Money (ATM) Cards have Made Traveller Cheques:

A customer may request his bank to issue a Letter of Credit for which he has to deposit cash for the required amount; the bank issues the letter of credit, crediting Letters of Credit Account. When the bill of exchange drawn against the letter of credit is received for payment, the amount is debited to Letters of Credit Account.

If a bank is requested to issue travellers cheques or letter of credit in a foreign currency, the bank collects from the customer the equivalent value in home currency and purchases immediately the amount of the foreign currency equal to the value of travellers cheques or letter of credit issued.

Non-Cash Bank Transactions: Type # 4.

Acceptances, Endorsements and Other Obligations:

Credit of a bank is more acceptable than that of its customers. Hence, a bank is often requested by a customer to accept or endorse a bill of exchange on his behalf or give a guarantee of repayment of a loan raised by the customer. Suppose, A makes a purchase from B and wants credit. B is willing to extend credit provided he is satisfied that on the due date, payment will be forthcoming.

To assure B, A can do one of the following things:—

(a) He may request his bank to stand as a guarantor;

(b) He may send a promissory note in favour of the bank and the bank may then endorse it in favour of B; and

(c) He may request the bank to send its own acceptance to B.

Guarantee and endorsement are on the same footing and will stand cancelled when A makes the payment. If A does not pay, the bank will pay to B and debit A’s account. In case the bank accepts a bill of exchanger, the bank will have to pay to B recovering the amount from A. In this case “acceptances on behalf of customers” will equal “customers’ liability for acceptances.”

To safeguard its interests, the bank may require the customer to deposit a security for an appropriate amount against a guarantee, or an acceptance or endorsement by the bank on behalf of the customer. A record of the guarantee given or the particulars of the bill accepted or endorsed as well as the particulars of the security collected from the customer will have to be recorded in different registers.

Outstanding amount of acceptances, endorsements and other obligations at the end of the year has to be shown as Contingent Liabilities in Schedule-12 of the Balance Sheet of the bank.

Non-Cash Bank Transactions: Type # 5.

Bills for Collection:

A bank receives a large number of bills receivable from its customers for collection on the due dates of the bills. The bank keeps these bills with itself till maturity and, on realisation, credits the amounts to the clients concerned. Similarly, businessmen having sold goods to outstation customers hand over documentary bills to the bank to be handed over to the purchasers on payment of the concerned bills.

Here also, the amounts collected for the documentary bills are credited to the clients submitting such bills. The bank keeps systematic records of all such bills in a separate register which is called Bills for Collection Register. The total amount of all the bills lying with the bank for collection at the end of the year is shown separately at the foot of the Balance Sheet of the bank.

Non-Cash Bank Transactions: Type # 6.

Bills Purchased and Discounted:

Customers offer to a bank bills receivable for outright purchase or discounting. When the bank purchases or discounts the bill, the amount of the bill less discount charge is credited to the account of the customer, the discount charged is credited to the Discount Account and the full amount of bill is debited to Discounted Bills Account.

At the end of the year, the outstanding amount of all such bills is shown as Bills Purchased and Discounted in Schedule-9 of the Balance Sheet.

Non-Cash Bank Transactions: Type # 7.

Rebate on Bills Discounted:

This means unearned discount for those bills that will mature after the date of closing of accounts, that is, that portion of the discount which relates to the period falling after the close of the accounting year. When a customer gets a bill discounted, the bank credits the Discount Account with the total amount of the discount the bank will earn in respect of the discounted bill.

The credit of the Discount Account represents the bank’s earning. If a bill matures after the close of the accounting year, the discount on the bill from the date of closing to the date of maturity of the bill is unearned and hence it will be wrong to credit the Profit and Loss Account with the full discount on the bill. The unearned discount is known as” Rebate on Bills Discounted”.

With effect from the accounting year ended 31st March, 1992, ‘Rebate on Bills Discounted’ is not to be shown as a separate item in the Balance Sheet or any of its Schedules. The amount of Rebate on Bills Discounted is included in the item ‘Other Liabilities and Provisions’ in Schedule-5 attached to the Balance Sheet.