Cheque Received Journal Entry
A cheque is a document that orders a bank to pay a specific amount of money from a person’s account to the person in whose name the cheque has been issued.
The person who writes the cheque is known as the drawer and the person who is named on the cheque as the payee. Cheques are a type of bill of exchange and were developed as a way to make payments without having to carry large amounts of cash.
Historically, cheques were written by hand, but now they are usually printed by banks or businesses. In most jurisdictions, cheques are now subject to extensive regulation, and it is considered a crime to issue a check without enough cash.
When a cheque is presented for payment, the drawer’s bank pays the amount specified on the cheque from the drawer’s account. If there are insufficient funds in the account, the check will be returned unpaid. Cheques are typically processed quickly and efficiently, but there can occasionally be delays if there are problems with the account or if the cheque is unusually large.
The company may receive a cheque from various partners to settle any obligation. It is classified as the cash and cash equivalent on the company balance sheet. After receiving the cheque, company must deposit it into the bank to cash the money. Before depositing a cheque into the bank, it is considered as the deposit in transit which is the bank reconciling items.
Journal Entry
The company will record an increase in cash at bank when receiving cheques from the other parties. After that accountant has to deposit the cheque into the bank. Before the bank credit balance, it will consider as the deposit in transit.
- Receive cheque to settle accounts receivable
The company may receive a cheque from the customer to settle the outstanding accounts receivable. The customers have purchased the goods or services on credit, so they have the obligation to make payment on the due date.
Instead of paying with physical cash or bank transfer, the customers can use cheque to make payments to the company.
When receiving cheques, the company needs to record cash increases and remove the accounts receivable.
The journal entry is debiting cash at bank and credit accounts receivable.
| Account | Debit | Credit |
|---|---|---|
| Cash at Bank | XXXX | |
| Accounts Receivable | XXXX |
- Receive cheque for the sale
The company can receive cheques from the customers who purchase the goods or services. They use the cheque to pay for the goods or services.
It is a cash sale but instead of physical cash, the customer uses the cheque instead. The company will exchange the goods for the cheque from the customer.
The journal entry is debiting cash at bank and credit sale.
| Account | Debit | Credit |
|---|---|---|
| Cash at Bank | XXXX | |
| Sale | XXXX |
- Receive cheque from creditor
The company borrows money from creditors to support the operation. The creditor may disburse the loan by using the cheque to secure that the cash is delivered to the borrowers.
The journal entry is debiting cash at bank and credit loan payable.
| Account | Debit | Credit |
|---|---|---|
| Cash at Bank | XXXX | |
| Loan Payable | XXXX |
- Receive cheque from owner investment
The owner investment is the increase of equity into the company balance sheet. The company needs equity to operate the business besides the loan. It is the cash that the owner invests into the company to pay for other expenses.
The journal entry is debiting cash at bank and credit owner’s equity.
| Account | Debit | Credit |
|---|---|---|
| Cash at Bank | XXXX | |
| Owner’s Equity | XXXX |
- Receive Cheque from the selling of fixed assets
Besides selling the service, the company may sell fixed assets in certain circumstances. The company needs to dispose of the fixed assets when they are not damaged.
The journal entry is debiting cash at bank, fixed assets accumulated depreciation, and credit fixed assets cost.
| Account | Debit | Credit |
|---|---|---|
| Cash at Bank | XXXX | |
| Fixed Assets – Acc Dep | XXXX | |
| Fixed Assets – Cost | XXXX |
Example
Company ABC has sold the goods on credit to a customer amount $ 100,000. The company has recorded sales and accounts receivable. On the due date, the customer made the payment using a cheque. Please prepare a journal entry for the cheque received.
This is the transaction in which the company receives a cheque from the customer to settle the accounts receivable. ABC has to record cash at the bank and reverse the accounts receivable.
The journal entry is debiting cash at bank $ 100,000 and credit accounts receivable $ 100,000.
| Account | Debit | Credit |
|---|---|---|
| Cash at Bank | 100,000 | |
| Accounts Receivable | 100,000 |