"Learn what a cheque is, how it works, and see easy examples to understand this important financial tool for kids and beginners."
Have you ever heard someone talk about writing a cheque?
Maybe you've seen one before. A cheque is a special piece of paper that tells a
bank to pay a certain amount of money to someone. It's like a promise that the
person who writes the cheque has enough money in their bank account to give to
the person who receives the cheque. Let’s dive in and learn more about what
cheques are, how they work, and see some examples to make everything clear.
What is a Cheque?
A cheque is a written, dated, and signed order from one
person (the writer) to their bank, telling the bank to pay a specific amount of
money to another person or business. It's a way to move money from one person
to another without using cash. Think of it as a special kind of IOU that can be
turned into money.
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| Understanding Cheques A Simple Guide for Beginners with Examples 2024 Subramoneyplanning Blog |
A cheque has several important parts. Let’s break them down:
- Drawer: The person who writes the cheque. This is the account
holder who is promising to pay money.
- Payee: The person or company who will receive the money.
This is the person the cheque is written out to.
- Drawee: The bank that will pay the money. This is the bank
where the drawer has their account.
- Amount: The money to be paid, written in numbers and words to
avoid any confusion.
- Date: The day the cheque is written. This tells the bank
and the payee when the cheque was issued.
- Signature: The drawer’s signature to make it official. Without
this, the cheque isn’t valid.
Types of Cheques
There are different types of cheques, each serving a
specific purpose. Here are some common ones:
- Bearer
Cheque: This can be cashed by anyone
who has it. It’s like cash, so you have to be careful not to lose it.
- Order
Cheque: Only the person whose name is
on the cheque can cash it. This makes it a bit safer than a bearer cheque.
- Crossed
Cheque: This must be deposited into a
bank account and cannot be cashed immediately. It’s safer because it can
only be transferred between bank accounts.
- Post-dated
Cheque: This has a future date on it.
The bank will only pay the money on or after that date.
- Stale
Cheque: This is an old cheque that
might not be valid anymore. Usually, cheques become stale after six
months.
Examples of Cheques
Personal Cheque
Imagine John writes a cheque to his friend Mary for $10 to
pay for a book she bought for him.
- Date: July 13, 2024
- Payee: Mary Wilson
- Amount: $10
- Signature: John David
Mary can take this cheque to the bank and get the money. The
bank will check that John has enough money in his account and then give Mary
the $10.
Business Cheque
ABC Toy Store writes a cheque to XYZ Supplies Ltd for $50
for some new toys.
- Date: July 13, 2024
- Payee: XYZ Supplies ltd
- Amount: $50
- Signature: Authorized person from ABC Toy Store
XYZ Supplies Ltd will deposit this cheque into their
business bank account. The bank will move $50 from ABC Toy Store’s account to
XYZ Supplies’ account.
Crossed Cheque
Rachel writes a cheque to her landlord for $80 for rent, but
she crosses it to make it safer.
- Date: July 13, 2024
- Payee: Landlord
- Amount: $80
- Signature: Rachel Marsh
- Crossing: Two parallel lines on the top left corner
The landlord has to deposit this cheque into their bank
account. This means the money will go directly into the landlord’s bank
account, making it a safer transaction.
How to Write a Cheque
Writing a cheque might seem tricky, but it's straightforward
once you know how. Here are the steps:
- Date: Write the date in the top right corner.
- Payee: Write the name of the person or business you are
paying.
- Amount
in Numbers: Write the amount in numbers
next to the dollar sign.
- Amount
in Words: Write the amount in words on
the line below the payee's name. This helps avoid confusion.
- Signature: Sign the cheque at the bottom right corner.
To Conclude, Cheques are a safe and easy way to transfer money from one person to another without using cash. They have important details like the amount, date, and signatures to make sure everything is clear and secure. Next time you see a cheque, you’ll know exactly what it is and how it works! By understanding cheques, you’re taking a step towards becoming financially savvy, which is a great skill to have as you grow up.
