A cheque deposit results in an inflow of funds.
We will understand JE in the Q&A form.
What does a Cheque deposit mean?
It’s a receipt from the debtors.
Where is the Cheque deposited?
Deposit happens in Banks.
How to record the Journal Entry?
Identify the GL accounts impacting the transaction.
So, we need to understand the details of the debtors from whom there is a Cheque receipt.
Cheque deposited in bank journal entries involves the Bank Account and the debtor’s GL account.
We will now apply the golden accounting rules for these two GLs to understand which accounts will be on the debit and credit sides.
From the above table, we will debit the bank account for the inflow of funds and credit the debtors, as it’s a Giver. As money is received from the debtor, we need to reduce the receivable balance to the extent of receipt. The receivable GL will have a debit balance; to decrease it, we need to do the opposite of a debit. So, we will credit the debtor’s GL in the journal entry.
Cheque deposited in a bank journal entry:
Runners Insight:
Note that there will be a gap between when the cheque is deposited in the bank and when it’s cleared. So, there might be a difference between the bank account as per the accounting software (or books of accounts) and the balance as per the Bank (Internet banking or Passbook). We will call those differences reconciling items. A bank reconciliation statement is prepared to ensure that both the book and bank passbook balances agree.
What is the Journal entry for a Cheque deposited in the bank?
Entities generally allow their debtors a discount if they make quick payments. There will also be a discount if the debtors pay the outstanding amount before the credit period ends. For example, Always Neglect offers its debtors a 45-day credit period. However, there are 3% and 2% discounts for payments with credit periods of 15 days and 30 days, respectively.
Runners Insight:
Do you know why the entity offers such a discount?
Cash Inflows will reduce financing costs, so the entity offers a discount. However, the discount provided shall not exceed the interest costs saved. The discounts will generally not exceed 2%-5% of the total receivables.
Now that we understand why discounts are allowed, we will learn how to record such discount journal entries.
The new GL account here is the one for the discount allowed. It’s a Nominal account. Per the Golden accounting rules, we must debit all expenses and losses and credit all income and gains. So, the discount allowed is forgoing the receivable amount. Therefore, it’s nothing but a loss to the business. As such, we need to debit the allowed discount to the GL.
We must note that the debtor’s balance will be on the credit side of the journal entry for the full amount. Discounts will not impact it. This is because the entity forgoes the amount, and the balance will be issued as a cheque.
Conclusion:
The cheque deposited in the bank journal entry will be debited to the bank account and credited to the giver. The giver can be a debtor or any other entity from whom amounts are due. If any discounts are allowed, the GL will be debited for the discount amount, and the balance will be deposited into the bank account. These days, we also have cheque deposit machines to facilitate easy customer banking.
