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Which date?

Shivani (Learner) (1881 Points)

10 September 2015

Dear Friends

I need to know that when we receive cheque on 01-Apr-2015 dated 20-Mar-15 and we deposit it in our bank on 05-Apr-15, then on which date we pass entry in our books?

LIkewise when we issue a cheque dated 10-Apr-15 but it is handed over to the creditor on 15-Apr-15, then on which date we pass entry in our books?

Also please tell the entries in both cases in our books.

Regards

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12 Replies

CMA Poornima Madhava (CMA) (13112 Points)
Replied 10 September 2015

Date when you receive the cheque (ie.1/4/15)
Date when you prepare the cheque (ie. 10/4/15).

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Shivani (Learner) (1881 Points)
Replied 11 September 2015

Dear Mam

But mam if we pass entry in our books on 1-April itself then wont we be unncessary inflating bank balance in our books for 4 days as we have deposited cheque in bank only on 5-Apr

Dont u feel we should pass entry in our books on teh day we deposit cheque in bank i.e. on 5th Apr. It will give better picture of our books.

The time bank takes in clearing cheque is not in our control but why we raise our bank balance on teh day we receive the cheque?

If we dont deposit the cheque for 2 months then our bank account in our books will keep giving a false picture.

Regards

CMA Poornima Madhava (CMA) (13112 Points)
Replied 11 September 2015

Actually, the date of receipt in your books is the date when you receive the cheque and not the bank. As you say, it will not make a big difference if you account such cheque on 5th instead of 1st, if you contend that you received it on 5th. However, this will have a problem with respect to internal controls of the organization. Let me illustrate, Suppose let us say, the cheque was received on 1st by the accounts/treasury dept and the same was deposited into the bank account on 5th (delay of 3 days). Suppose you do not record the date of actual receipt, how will you be able to analyse/correct delay? So in the best interest, things have to be recorded as and when they occur.
Even if you pass entry on 5th (to avoid unnecessary inflation of balance in the books), the actual credit would happen after a day or two (for local cheques) and after 1-2 weeks (outstation). So even in this case, you are inflating the balance till the cheque is cleared/credited. But, if you account the receipt only after the same is credited to your account, then what will you answer if I ask you how did the bank get the cheque from you for sending it for clearance when you yourself have not received the cheque as per your books?
You are right, if you account receipt in the books but don't deposit the cheque for 2 months, naturally there will be a difference between the bank and book balance. For this purpose only, we do bank reconciliation at periodic intervals.

Hope it is clear.

Shivani (Learner) (1881 Points)
Replied 11 September 2015

Dear Mam

thanks for ur reply.

one more thing struck my mind.

In my example, the debtor gave us cheque on 01-Apr-15. the cheque is dated 20-Mar-15.

now if the debtor has exceeded the credit period we allow to him, then we will charge him interest for delayed period from the date payment is due to the date we receive the cheque.

If i dont account for cheque on 1-apr but instead wait till 5-Apr, then debtor account will close in my books on 5-Apr and Tally will calcualte interest for 4 more days which is not fair.

in my view debtors liability ceases when he hand us the cheque unless of course the cheque gets honoured.

so when i receive the cheque i am passing following entry

1-apr

Cheque in hand

To Debtor

and on date of deposit

5-apr

Bank

To Cheque in hand

i think by this way we wont be inflating bank account and will also keep control on cheques we received and havent deposited plus it will also save us from charging unncessary interest to debtor.

please correct me mam if i am wrong anywhere in this.

regards

CMA Poornima Madhava (CMA) (13112 Points)
Replied 11 September 2015

Yes, you can do so.

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Shivani (Learner) (1881 Points)
Replied 12 September 2015

Dear Mam

Few more questions.

1) we will charge interest for late payment till the date he deliver us cheque or till the date cheque gets cleared from bank?

2) also mam when do we pass entry for the cheques we issue to creditors?

on the date of issue of cheque OR on the day cheque is handed over to creditor?

i feel we should pass entry on the day cheque is handed over to the creditor and also prepare voucher on the date of handover.

Please guide on above 2 points.

also mam u gave me ur email id once but i lost it .

can u please message me ur email id .

regards

CMA Poornima Madhava (CMA) (13112 Points)
Replied 14 September 2015

It can be any of the two. It depends on the internal policies and agreement with the payer. But general practice is, date when the cheque is handed over to you is regarded as the date of payment by the payer if such cheque is not dishonored when presented to the bank.
Date of payment, generally, is the date when the cheque is prepared & signed.

CMA Poornima Madhava (CMA) (13112 Points)
Replied 14 September 2015

It can be any of the two. It depends on the internal policies and agreement with the payer. But general practice is, date when the cheque is handed over to you is regarded as the date of payment by the payer if such cheque is not dishonored when presented to the bank.
Date of payment, generally, is the date when the cheque is prepared & signed.

CMA Poornima Madhava (CMA) (13112 Points)
Replied 14 September 2015

It can be any of the two. It depends on the internal policies and agreement with the payer. But general practice is, date when the cheque is handed over to you is regarded as the date of payment by the payer if such cheque is not dishonored when presented to the bank.
Date of payment, generally, is the date when the cheque is prepared & signed.

Shivani (Learner) (1881 Points)
Replied 16 September 2015

Dear Mam

If we take date of payment as date of prepartion and signing of cheque then consider following situation:

We prepared and signed cheque on say 01-Apr-15 but we handed it over to creditor on 10-Apr-15.

u suggest to pass entry in our books on 1-Apr-15 itself and close creditor account in our books. but in case of late payment the creditor will continue to charge us interest till 10-Apr, till we hand over him the cheque.

dont u think we should pass payment entry and close creditor account in our books on 10-Apr?

regards

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CMA Poornima Madhava (CMA) (13112 Points)
Replied 16 September 2015

But many companies use accounting software itself for preparation of cheque. If so, how will this situation be handled? Generally for business transactions with creditors, there will be a credit period and also in most of the cases, no interest will be charged by creditors. If so, there will not be any problem even if there is a mismatch between two dates.

But if each and every day is important to arrive at the interest value, then what you say is correct, that is to account on the day when the cheque is actually handed over to the creditor.

Finally, depending upon the nature of business, you can consider a suitable method.