N4 Introductory Financial Accounting | Student Book


Order cheques/crossed cheques • A crossed cheque must be paid into a bank account or can be exchanged for cash by the drawer at his/her bank.


• The words ‘or bearer’ are crossed out with two parallel lines. • The word ‘order’ is written above it.


Payee’s endorsement • An endorsed cheque has the payee’s signature at the back of a cheque to make payable to a third party.


3. Restrictive expressions, words and marks used in a cheque 1. Not transferable 2. Not negotiable 3. Account payee (acc payee) only


1. Not transferable • The cheque cannot be transferred to another person. • The cheque can only be deposited into a bank account with exactly the same name as that of the payee on the cheque (that is, only the payee can deposit the cheque into his/her bank account).


2. Not negotiable The cheque cannot be transferred to the legal ownership of another person.


3. Account payee (A/c payee) only: • The cheque cannot be transferred to anyone else. • Only the payee can pay the cheque into his/her bank account.


4. Cheques with alterations • Banks do not accept altered cheques, even if the drawer has signed the alteration. • The cheque will be returned unpaid and marked “unable to collect funds alterations.” • The cheque must be cancelled and replaced with a new cheque.


5. Dishonoured cheques • A dishonoured cheque did not pass for payment by the bank. • “Refer to drawer” or R/D will be written on the cheque. • Reasons for a cheque to be dishonoured: – A cheque is stale: When a cheque that was dated more than six months before the date on which it is being deposited then the cheque is said to be stale.


– A cheque is unsigned or contains an error. – A cheque shows the wrong signature. – It is an altered cheque. – There are insufficient funds in the account. – It is a cancelled cheque: A cheque has been stopped by the drawer for various reasons. – It is a post-dated cheque: A cheque that bears a date that is later than the date on which it is being deposited, the cheque has a future date.


6. Advantages of using a cheque • The business does not need to keep large sums of money on the business premises. • Cheques are safer to use than cash. • There is more control exercised over payments.


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