Cash is the life-blood of the business without which, it cannot operate smoothly. A cash transaction refers to any business transaction, which involves immediate payment or receipt of cash. So, a transaction that involves an increase or a decrease in cash balance or bank balance or both is called a 'cash transaction'. For example purchase and sale of goods or assets for cash, payment of any expense or receipt of any income etc.
When a transaction is made through the bank, then it is called a 'banking transaction'. So, a banking transaction involves immediate payment or receipt of cash through the bank.
Business transactions include both cash and banking transactions. In accounting, cash transactions are treated as the items of real account. But banking transactions are treated as items of personal account and sometimes as items of real account. Therefore, while recording cash and banking transactions of a business, the following points are to be considered:
Current deposit account
A current deposit account is also known as demand deposit account. This account is generally maintained by the traders and businessmen, which have to make a number of payments every day. There is no restriction on a number of deposit and withdrawal in a current account. So this is preferred by business entities.
Saving deposit account
This deposit is mostly of small amounts. The main aim of this account is to encourage and mobilize small savings of the public. Frequent withdrawals are not allowed in this account. Similarly, a limited amount can be withdrawn at a time. Generally, a low rate of interest is paid on these accounts.
Fixed deposit account
In this account, money is deposited only once and can be withdrawn only after the expiry f the agreed fixed period. Bank does not issue cheques and passbook to its depositors but issues a certificate. The rate of interest on this account is highest than that of other types of deposits. The longer the period, the higher will be the rate of interest. Fixed deposit is also called 'time deposit or time liability'.
Before opening a current or saving account a person or an organization should satisfy the following requirements:
A cash transaction refers to any business transaction, which involves immediate payment or receipt of ______.
When a transaction is made through the bank, then it is called a ‘______’.
Which one of the following point is to be considered while recording cash and banking transaction of a business?
a transaction that involves increase or decrease in cash balance or bank balance or both is called a ‘______’.