Cheque Deposited into Bank Journal Entry
A cheque deposit is a process that a company deposits cheque into its bank account, and the cheque collects from other parties such as customers.
A cheque is a written and signed order from one person to another, instructing the bank to make payment to the person whose name is on the cheque. The cheque must include the amount of money and the name of the person receiving the money. The cheque is usually written on special paper with pre-printed spaces for various entries so that all required information is entered correctly. It is also an important part of managing finances and is used by people worldwide.
Cheques are often used in business transactions as a more secure payment than cash. Cheques provide an additional layer of protection as they cannot be collected until they have been physically presented at the bank and cleared. This means that any problems or disputes concerning the cheque can be identified by the issuing or receiving banks, and any possibility of fraud is significantly reduced.
When businesses receive cheques, they have various options for what to do with them. They may present them directly to their own bank, to be credited to their account; or they may deposit the cheque into a bank account.
The cheque is treated as cash when deposited into the bank. If the cheque is valid and the issuer has enough balance, the bank will deduct the issuer’s balance and put it into the payee’s name bank account.
Journal Entry for Depositing Cheque
When depositing the cheque, the company needs to recognize the cash in the bank. It is similar to depositing cash as well.
If the company receives a cheque in the form of payment from the customer, the company needs to record an increase in cash at the bank and decrease the accounts receivable.
The journal entry is debiting cash at bank and crediting accounts receivable.
| Account | Debit | Credit |
|---|---|---|
| Cash at Bank | XXX | |
| Accounts Receivable | XXX |
Example
Company ABC has collected the cheque from the customer amount $ 25,000. The customer has issued the cheque to ABC to settle for the credit purchase in the previous month. ABC has received the cheque and deposited it into the bank. Please prepare journal entry for the cheque deposit.
The company has received a cheque which is used to settle the accounts receivable, and deposit it into the bank.
ABC has to record an increase in cash at bank and reverse the accounts receivable amount $ 25,000.
The journal entry is debiting cash at bank $ 25,000 and crediting accounts receivable $ 25,000.
| Account | Debit | Credit |
|---|---|---|
| Cash at Bank | 25,000 | |
| Accounts Receivable | 25,000 |
Benefit of Using Cheque
When it comes to making payments, cheques are one of the oldest payment methods but they still remain popular today. Writing a cheque is convenient, secure, and cost-effective. Here are some advantages to using cheques:
- Increased Security – Cheques provide an extra layer of security when used to pay for goods or services. Each cheque is numbered sequentially and comes with a signature, both of which must match the bank account holder’s information before the funds can be released. This makes it difficult for fraudsters to access your account in an unauthorized manner.
- Reduced Risk of Fraud – Using cash or paying by credit or debit card leaves you vulnerable to fraud. A cheque cannot be stolen from you or hacked like a traditional card payment, reducing your chances of becoming a victim of fraud.
- Cost-Effective – Processing cheques is cheaper than other forms of payment such as virtual transfers, direct debits, and credit/debit cards because there is no processing fee charged by banks. Additionally, businesses looking to accept large sums can save money on expensive merchant accounts that are often required for online payments. All these costs add up over time, so using cheques helps businesses save money on their operational expenses, giving them more funds to invest back into their business operations.