What is a Blank Cheque?
A blank cheque is a cheque that is signed by the account holder (drawer) but does not have a specified amount. This effectively means that the amount to be drawn is left open and can be filled in by the bearer (the person receiving the cheque). It’s essential that trust exists between the drawer and the bearer, as the bearer has the discretion to write any amount not exceeding the drawer’s account balance.
Key Features
- Signature Required: A blank cheque must be signed by the drawer.
- Unspecified Amount: The amount to be withdrawn is left blank for the bearer to specify.
- Negotiable Instrument: It remains a negotiable instrument and can be presented to the bank for payment.
Examples of Use
- Corporate Environment: A company may issue a blank cheque to a trusted employee for emergency expenditures.
- Personal Use: It can be given to family members or close friends when precise expenditure cannot be anticipated.
- Events and Functions: Event organizers might use blank cheques to cover unexpected costs that may arise during the event.
Frequently Asked Questions
Q: Is it safe to issue a blank cheque?
A: Issuing a blank cheque comes with risks, as the bearer can fill in any amount they choose. It should only be used when there is a high level of trust between the drawer and the bearer.
Q: How can I protect myself when issuing a blank cheque?
A: To mitigate risks, you can provide a limit or instructions alongside the blank cheque, and ensure it is issued only to trusted individuals.
Q: Can a blank cheque be canceled?
A: Yes, a blank cheque can be canceled by notifying the bank before it is cashed.
Q: What happens if a blank cheque is lost or stolen?
A: If a blank cheque is lost or stolen, you should immediately notify your bank to stop payment on the cheque to prevent unauthorized withdrawals.
Q: Are blank cheques legal?
A: While blank cheques are legal, their use is not common due to the inherent risks. Legal situations may vary by country.
- Cheque: A written order directing a bank to pay a specified sum from the drawer’s account.
- Bearer Cheque: A cheque payable to the bearer, meaning anyone holding the cheque.
- Crossed Cheque: A cheque that can only be deposited directly into a bank account and not cashed.
- Post-Dated Cheque: A cheque with a future date, not be cashed until the date specified.
Online References
Suggested Books for Further Studies
- “Accounting All-in-One For Dummies” by Kenneth W. Boyd
- “Frank Wood’s Business Accounting Volume 1” by Frank Wood and Alan Sangster
- “Financial Accounting” by Walter T. Harrison Jr., Charles T. Horngren, C. William (Bill) Thomas
Accounting Basics: “Blank Cheque” Fundamentals Quiz
### What is the primary characteristic of a blank cheque?
- [ ] It has a specified amount.
- [x] It has an unspecified amount.
- [ ] It is unsigned.
- [ ] It does not include a date.
> **Explanation:** A blank cheque is characterized by having an unspecified amount, allowing the bearer to fill in the amount to be withdrawn.
### From whom should a blank cheque ideally be received?
- [ ] An unknown individual
- [ ] A random employee
- [x] A trusted individual
- [ ] Any bank customer
> **Explanation:** A blank cheque should be issued to or received from a trusted individual to mitigate the risk of unauthorized withdrawal.
### Can a blank cheque be presented to the bank without a filled amount?
- [ ] Yes, it can be cashed immediately.
- [ ] Yes, if it’s endorsed by the bank.
- [x] No, it requires the amount to be filled in.
- [ ] No, it needs a manager’s approval.
> **Explanation:** A blank cheque cannot be processed by a bank until the amount is filled in.
### Which is an appropriate use of a blank cheque?
- [x] For covering unexpected event costs.
- [ ] For regular monthly bills.
- [ ] For minor personal expenses.
- [ ] For pre-defined business expenses.
> **Explanation:** A blank cheque can be useful in situations where costs are unpredictable, such as during events.
### Is it risky to issue a blank cheque?
- [x] Yes, there are risks involved.
- [ ] No, there are no risks.
- [ ] Only if it’s post-dated.
- [ ] Only if it’s a bearer cheque.
> **Explanation:** Issuing a blank cheque involves risks, as the bearer can fill in any amount, potentially exceeding the safe limit.
### How can you cancel a blank cheque?
- [ ] Keep it at home.
- [ ] Tear it apart.
- [ ] Hand it over to another person.
- [x] Notify the bank.
> **Explanation:** To cancel a blank cheque, you must notify your bank to stop the payment.
### What type of cheque needs the recipient to specify an amount?
- [x] Blank cheque
- [ ] Crossed cheque
- [ ] Post-dated cheque
- [ ] Stale cheque
> **Explanation:** A blank cheque requires the recipient to fill in the amount to be withdrawn.
### What should you do if a blank cheque is lost?
- [ ] Contact the cheque recipient.
- [ ] Ignore it, as it can't be cashed.
- [ ] Issue a new blank cheque.
- [x] Notify the bank immediately.
> **Explanation:** If a blank cheque is lost, you should immediately notify your bank to prevent unauthorized withdrawals.
### What makes a blank cheque a negotiable instrument?
- [ ] It requires no signature.
- [ ] It cannot be endorsed.
- [x] It can be freely transferred.
- [ ] It must be crossed.
> **Explanation:** A blank cheque is considered a negotiable instrument because it can be transferred to another person and presented to the bank for cashing.
### Is the use of blank cheques common?
- [x] No, it's not common.
- [ ] Yes, it's very common.
- [ ] Yes, for everyday purchases.
- [ ] Only in small businesses.
> **Explanation:** The use of blank cheques is not common due to the high risks involved.
Thank you for exploring the intricacies of blank cheques and engaging with our challenging quiz. Enhance your financial acumen and navigate the banking world with confidence!
