Post-dated Cheques

Post-dated Cheques

      

        The cheques which bear a date prior to the date on which it is drawn and the date has not fallen due till presentment, are called post dated cheques.

                         

        Such cheques become effective on the date mentioned on the body of the cheque and the holder can sue the drawer of such cheque after the mentioned date only.

      These cheques are valid cheques and are in the form of usance bill of exchange. (Usance means The allowable period of time, permitted by custom, between the date of bill and its payment.)

      

          The payment of such cheques is not payment in due course

Misconceptions (wrong conclusion)

        “A post-dated cheque is essentially a negotiable document, and as such, a company or an individual may deposit it before the due date. The bank may honor the payment if the customer has sufficient funds in his account.”

In short,

                  A post-dated cheque is a negotiable instrument that allows a customer or borrower to indicate to the supplier or lender its promise to pay at a given date.

 For example:  A department store wants to purchase 10,00,000 Rupees worth of merchandise from a major supplier. The store's accounting manager notes that cash available at the bank is 325,000 Rupees He may issue a post-dated cheque negotiable within a month because he expects customers to pay 20,00,000  within 15 days.

 

 

Significance

                 Post-dated cheque play a significant role in modern economies. It  helps an individual or a company to receive goods or services and pay for them at a later date. This business practice is important because even profitable companies often have liquidity problems resulting from customers' delayed payments

Accounting Procedures

              Generally accepted accounting principles (GAAP) and cash accounting methods treat post-dated cheque the same way :-                                                  

“no journal entry recording.”

          A post-dated cheque is essentially a promise to pay, and until the business partner pays or reimburses amounts owed, no change is made in accounting books.

To illustrate,

         an accounting clerk receives a 45,000 rupees  post-dated cheque negotiable in one week. He cannot debit bank (asset) and credit sales revenue or accounts receivable to record this transaction because no payment is made. He can, however, write a memo about the post-dated cheque in the accounting ledger.

If the cheque clears the customer's bank after one week, the clerk may then record journal entries in the sales ledger.

Financial Statement Rules

       Post-dated cheque do not affect financial statement accounts, but regulatory guidelines and industry practices require a company to reveal significant amounts that it expects from customers at future dates. These amounts may relate to post-dated cheques or promissory notes.