Modes of Payment (Cheque, Bank Draft, Letter of Credit, ATM Card, SWIFT, Hundi)
Arjun EP
Modes of Payment
Modes of payment mean various methods of payment.
Generally, there are two types of payments mode; they are cash and bank.
Bank payment has various options like cheque, draft, online transfer, ATM card, debit card, credit card etc.
Some important methods of payment are explained below:
Cheque
Cheque is a written order given to the bank by an account holder.
He orders to pay certain amount out of deposit.
In short, a cheque is an order on a banker to pay the money.
In the cheque, the amount to be withdrawn should be written in figures as well as in words.
The person who issues the cheque has to put the signature on the cheque.
He should also mention the date.
Bank draft
Bank draft is a written order.
It is issued by a bank to its branch of other place.
Bank suggests to pay certain amount to certain person mentioned on draft.
Bank draft is the safest way to payment.
Bank charges some amount to prepare bank draft.
Like the cheque, bank draft may be bearer, order or crossed.
Bank draft can be used both in home trade and foreign trade.
Letter of credit, LC
Letter of credit is used to importing the goods from foreign country.
It is the guarantee letter issued by bank.
Bank of importer guarantees to pay the value of goods to bank of exporter.
Importer deposits local currency in his local bank and takes LC.
Importer sends LC to exporter.
After receiving LC, exporter dispatched goods to importer.
Exporter collects his local currency from LC.
Thus, letter of credit solves the problems of guarantee and foreign currency.
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Basic Journal Entries in Nepali |
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Basic Journal Entries |
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Journal Entry and Ledger |
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Ledger |
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Subsidiary Book |
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Cash Book |
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Trial Balance & Adjusted Trial Balance |
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Final Accounts |
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Government Accounting |
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Goswara Voucher (Journal Voucher) |
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ATM card (automated teller machine card)
A customer can use ATM card for cash withdraw and balance enquiry.
Nowadays, most of banks provide ATM card to their customer.
It is similar to debit card. It is provided on demand of customers.
Generally, customer can withdraw cash from ATM twenty four hours.
Bank installs ATM in public places like shopping mall, department stores, hospitals, airport, railway station, hotels etc.
Somewhere different banks use ATM hubs or junctions at one place.
Keep in Mind (KIM)
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Procedure of cash withdrawn from ATM: |
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Enter ATM card into ATM machine |
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Enter four digit pin number |
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Two options appear: (1) balance enquiry; (2) cash withdrawn |
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If balance enquiry (a) saving account; (b) current account |
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If cash withdrawn (a) fast cash; (b) customize cash |
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Go fast cash option………..eight options appear |
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Press any one according to your need |
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Machine throws cash |
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Take cash and balance slip |
Electronic transfer
When one bank transfers amount to another bank through electronic (like internet), it is known electronic transfer.
It is done through computer.
For this, a pin card should be taken from SWIFT (Society for Worldwide International Financial Transaction). SWIFT is an international organization.
To do business with SWIFT, inter-banking agreement is done with different countries.
These banks are known SWIFT member banks.
They can do business with different currencies.
Suppose, a person sends US Dollar from America to Nepal, the receiver of Nepal will receive these amounts in Nepali rupees.
Keep in Mind (KIM)
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In Nepal, electronic transfer is known remittance. |
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There are lots of money transfer like Western Union, IME, Moneygram, Prabhu etc. |
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ATM = Automated Teller Machine |
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SWIFT = Society for Worldwide Interbank Financial Telecommunication |
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PIN = Personal Identification Number |
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LC = Letter of Credit |
Hundi
Hundi was the most popular method to transfer money in old time.
It is still popular now. Hundi is the written order like bills of exchange.
A person or businessman writes it for other person or businessman.
On hundi, there are name, address, amount, signature of giver and name and address of receiver.
Hundi is based on goodwill of amount giver and receiver.
It is used for both home trade and foreign trade.
In some countries, it is very popular and bank pays amount of hundi after deducting its commission.
But in some countries, it is illegal.
Keep in Mind (KIM)
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There are different types of hundis, out of them muddati (fixed) and darshani hundis are very popular. |
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The amount of muddati hundi is paid after fixed time. The amount of darshani hundi is paid immediately. |
Theoretical Questions
Very short answer questions
VSAQ 1: Write the meaning of trade.
VSAQ 2: What is home trade?
VSAQ 3: What is foreign trade?
VSAQ 4: Write down the full form of WTO.
VSAQ 5: Write down the full form of SAARC.
VSAQ 6: Write down the full form of TRIPS.
VSAQ 7: Write down the full form of SAFTA.
VSAQ 8: Write down the full form of SAPTA.
VSAQ 9: Write down the full form of LC.
VSAQ 10: Write the meaning of invoice.
VSAQ 11: What is the full form of FOB invoice?
VSAQ 12: What is the full form of C&F invoice?
VSAQ 13: What is the full form of CIF invoice?
VSAQ 14: Write the meaning of Franco Invoice?
Short answer questions
SAQ 1: Write down the terms and conditions of home trade.
SAQ 2: What are the main documents of home trade?
SAQ 3: Write down the terms and conditions of foreign trade.
SAQ 4: What are the main documents of foreign trade?
SAQ 5: Introduce world trade organization. Write any four features of WTO.
SAQ 6: What are the major objectives of WTO?
SAQ 7: Introduce about South Asian Free Trade Area.
SAQ 8: Write down main functions of SAFTA.
SAQ 9: What do you mean by invoice? Write its any four importances.
SAQ 10: Write down the types of invoices used in foreign trade.
SAQ 11: Explain any five modes of payment.
Long answer questions
LAQ 1: What is invoice? Explain the different invoices used in foreign trade.
LAQ 2: Explain any seven modes of payment.
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