Nature of Cheques in Accounting
🔹 Cheque Received
A cheque received is not cash, but a right to receive funds from the payer’s bank.
Upon receipt, the money is not yet in cash or in the bank account
The cheque is recorded as an intermediate asset (e.g., “cheques receivable” or “funds in transit”)
Funds are recognized only after:
encashment (→ cash), or
deposit and clearing in the bank (→ bank account)
🔹 Cheque Issued
A cheque issued is not an immediate cash outflow, but a commitment to pay via the bank.
At the moment of issuance, the money remains in the bank account
The cheque represents a liability to the payee
Funds are deducted only after:
the cheque is presented, and
the bank processes (clears) it
Key Difference
Cheque received → we are owed money (asset)
Cheque issued → we owe money (liability)
Important
Cheques are not considered cash until they are actually encashed or cleared by the bank.