At the end of this unit you should be able to:
- explain what a bank is
- explain everything peculiar to the bank e.g cheque, stale cheque, crossed cheque, open cheque, and bank charges.
A comprehensive term for a number of Institutions carrying on certain kinds of financial business, several types of bank are to be found in Nigeria:
- Savings Banks, which accept deposits,
- Commercial (or joint-stock) banks which do most kinds of banking business- accepting deposits, allowing customers the use of cheques, granting credit by loan or overdraft, discounting bills of exchange, foreign exchange transactions, acting as agents for customers in the sale or purchase of stock exchange securities, acting as executors or trustees and providing safe custody by valuables.
- Merchant banks which still to a considerable extent specialize in business connected with bills of exchange, especially the acceptance of foreign bills,
- Central banks, the main business• of which is to carry out a country’s monetary policy. There are also
- Investment banks but this have never been popular in Nigeria.
They acquire shares in limited company on their own account and act merely as agents for their customers. Sometimes banks are established to undertake specialized banking functions for particular industries, as in Nigeria where there is Agricultural bank. There are also a number of firms which describe themselves as Industrial bankers, although most of them understand some ordinary banking business, they are primarily finance houses whose main concern is with the financing of hire
A cheque is an order in writing addressed to a banker asking the banker to pay a certain sum of money to the person named in the cheque or to the order of that person, or to the bearer of the cheque.
- The cheque must be an order in writing and the banker must comply except in certain circumstances.
- It must be in writing and not verbal, but the writing need not be on special paper, though almost all banks issue standard cheque forms for convenience.
- The sum to be paid must be certain. It is not enough to write “pay some naira to John” it should be “Pay N20 to John
- There must be a payee (person to whom the money will be paid) who may be the person name in the cheque or the person to whom the person named has ordered to be paid. The payee may in fact be the person in possession of the cheque.
- There must be three parties to a cheque, viz the drawer, the drawee and the payee. The drawer (usually the owner of the cheque) is the person who draws a cheque on the drawer bank. The drawee is the bank to whom an order to pay is given.
The payee is the person to whom the money would be paid. Below is a specimen “Cheque”
(Please see a Life Sample)
To file a cheque is a very simple thing but care must be taken to ensure that the figure and words are properly written to make alternation very difficult. All that the drawer does is to write the name of the payee (except where bearer is the payee), the amount to be paid and sign his usual signature. Of course, the date should also be written. The main I part of the cheque is then torn off along the dotted line and handed to the payee. The payee presents the cheque, as soon as possible, to the drawer bank and gets the sum stated therein.
The remaining part of the cheque, variously called counterfoil or stub is retained in the cheque book for record purposes. It is not a strict requirement that the purpose of the payment should be state in the counterfoil. It is only intended to facilitate accurate accounting and the practice is today almost universal.
As defined by the bill of exchange Act (1882) a cheque is “Stale” if its date shows it to have been in circulation for ‘an unreasonable time’, the exact period of time never having been legally defined. Most banks regard as ‘Stale’ cheques presented six months after date. Such cheque being required to be confirmed by the drawer, though some banks take no action unless a cheque has been drawn twelve months.
When the drawer return a cheque on the condition that the cheque is ‘Stale’ the accounting treatment for such a cheque will be Debit the cash book for the sum Credit the account of the payee.
Note: the cash book has been credited when the cheque was first drawn and given to the payee. Then also the account of the payee in the ledger was debited. Thus the reverse entry now.