Understanding Cheques: A Simple Guide for Beginners with Examples

"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.

Understanding Cheques A Simple Guide for Beginners with Examples 2024 Subramoneyplanning Blog

Parts of a Cheque

A cheque has several important parts. Let’s break them down:

1. Drawer: The person who writes the cheque. This is the account holder who is promising to pay money.
2. Payee: The person or company who will receive the money. This is the person the cheque is written out to.
3. Drawee: The bank that will pay the money. This is the bank where the drawer has their account.
4. Amount: The money to be paid, written in numbers and words to avoid any confusion.
5. Date: The day the cheque is written. This tells the bank and the payee when the cheque was issued.
6. 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:

1. 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.
2. Order Cheque: Only the person whose name is on the cheque can cash it. This makes it a bit safer than a bearer cheque.
3. 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.
4. Post-dated Cheque: This has a future date on it. The bank will only pay the money on or after that date.
5. 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:

1. Date: Write the date in the top right corner.
2. Payee: Write the name of the person or business you are paying.
3. Amount in Numbers: Write the amount in numbers next to the dollar sign.
4. Amount in Words: Write the amount in words on the line below the payee's name. This helps avoid confusion.
5. 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.

Categories: Banking Basics, Cheque Definition, Tutorials, Types of Cheque