Category: Commerce Notes PPT

A cross cheque is a negotiable instrument that specifies a general instruction for a check that has not yet been deposited into a bank account. The general direction of a cheque is referred to in this manner. The instruction provided above defines the amount claimed in the Cheque would be deposited immediately into the account of the Cheque bearer under Section 123 of the Negotiable Instruments Act, 1881. It will not be provided to the bearer in cash over the bank counter right away. We’ll try to cross-check in depth below.

Types of Cheque Crossing – Introduction

A cheque could be an instrument. It will either be open or crossed. An open cheque is that of the bearer cheque. It’s collectible over the counter on a presentation by the receiver to the paying banker. Whereas a crossed cheque isn’t collectible over the counter however shall be collected solely through a banker, the quantity collectible for the crossed cheque is transferred to the checking account of the receiver. Varieties of cheque crossing are General Crossing, Special Crossing, and Restrictive Crossing. Allow us to study cheque crossing in additional detail. A crossed cheque could be a cheque that has been marked specifying an instruction on the method it’s to be saved. 

A standard instruction is for the cheque to be deposited into an account with a bank and to not be like a shot paid by the holder over the bank counter. The format and verbiage vary between countries, however, usually, 2 parallel lines could also be placed either vertically across the cheque or on the highest corner of the cheque. By victimization of crossed cheques, cheque writers will effectively shield the instrument from being taken or paid by unauthorized persons. A crossed cheque could be a cheque that’s collectible solely through an assembling banker and indirectly at the counter of the bank. 2 parallel crosswise lines, with or with none word, are usually drawn on the highest left-hand corner of the cheque.

Crossing a Cheque

• The crossing of the cheque is an instruction to the paying banker to pay the amount to a specific person. The crossing of the cheque secures the payment by the banker.

• It conjointly traces the person, therefore, receiving the quantity of cheque. The addition of the words ‘Not negotiable’ or ‘Account receiver only’ is critical to restrain the negotiability of the cheque.

Types of Cheque Crossing

• General Crossing – cheque bears across its face an addition of 2 parallel crosswise lines.

• Special Crossing – It bears the crossing across its face in which the banker’s name is included

• Restrictive Crossing – It directs the assembling banker that he has to credit the number of cheques solely to the account of the receiver.

• Non-Negotiable Crossing – it’s once the words ‘Not Negotiable’ are written between the 2 parallel crosswise lines.

General Cheque Crossing

• In general crossing, the cheque bears across its face which includes the addition of 2 parallel crossing lines with little spacing between them, within the case of general crossing on the cheque, the paying banker pays cash to any banker. For the aim of general crossing 2 crosswise parallel lines at the corner of the cheque are necessary.

• Thus, during this case, the holder of the cheque or the receiver can receive the payment solely through a checking account and not over the counter. 

Special Cheque Crossing

• In a special crossing, the cheque bears across its face an addition of the banker’s name, with or whiles, not the words ‘not negotiable.

• In this case, the paying banker pays the quantity of cheque solely to the banker whose name seems within the crossing or to his assembling agent. The paying banker can honor the cheque only if it’s ordered through the bank which is mentioned within the crossing. However, in special crossing 2 parallel crosswise lines don’t seem to be essential, however the name of the banker is most significant.

Amount Payee Crossing

This type of cheque crossing indicates that the amount cannot be paid into any bank account other than the one specified on the check. This type of crossing assures that the funds are only moved to a bank account and not supplied in the form of cash.

Restrictive Cheque Crossing 

• This type of crossing restricts the negotiability of the cheque. It directs the assembling banker to credit the amount of money in a cheque to the account of the receiver. Where the assembling banker credits the return of a cheque bearing such crossing to the other account, he shall be guilty of negligence. Also, he won’t be eligible for the protection of the assembling banker below section 131 of the Act. However, such crossings can don’t have any impact on the paying banker. This is often therefore as a result of it’s not his duty to see that the cheque is collected for the account of the receiver.

Not Negotiable Cheque Crossing

• It is once the words ‘Not Negotiable’ are written between the 2 parallel crosswise lines across the face of the cheque within the case of general crossing or the case of special crossing beside the name of a banker.

• The Non-Negotiable Crossing doesn’t mean that the cheque is non-transferable. As per the Non-Negotiable Act, 1881  section 130

• A cheque holder which has crossed any single leaf of cheque either generally or in a special case. In either case, the words “non-negotiable”.

• Thus, he becomes the holder in due course and acquires an indisputable title thereto. Also, once the instrument passes through a holder in due course, all the next holders conjointly receive an honest title. But, no Negotiable Crossing takes away this vital feature. During this case, the transferee doesn’t get the rights of the holder in due course, as long as the title of the transferor is nice, the title of the transferee is additionally smart. Hence, just in case of any trace within the title of any one of the endorsers, the title of all the next transferees conjointly becomes tainted.

Why Cross Cheque?

• Crossing a Cheque offers a financial planning framework with explicit instructions on how to handle monies.

• Furthermore, cross cheques are often identified by drawing two parallel intersecting lines. It can be found either vertically across the cheque or in the upper left-hand corner.

• Within the lines, two or more statements such as ‘and company’ or ‘not negotiable’ may be fixed. Furthermore, just painting the lines without any text would not change the function of the crossing check.

• Furthermore, using Cross cheques, the amount transfer may be preserved by the cheque representatives. It might also be as a result of being sketched or photographed by an unauthorized individual.

• This cross-cheque composition, as well as its format and observations, may vary by country.

• As a result, cross cheques may only be paid through a bank account. The transaction record of the receiver can be found afterward for further questions and clarifications.

Cheque Validity

A cheque’s expected validity is three months from the day it is written. The cheque gets stale after three months, and the drawee bank may refuse to pay the amount. The drawer can revalidate the cheque if it becomes obsolete owing to the expiration of the validity term.

A Company is a legal group created by an individual or a group of individuals to work and regulate in a commercial market. A company can be coordinated in many ways for financial liability and tax purposes, depending on the Companies Act of its management. A company’s branch usually decides which corporate structure to choose, such as partnership, company, or corporation. In such cases, the company can be considered a kind of business. On the basis of shareholders, the company is divided into- Private Sector Company and a Public Sector Company. 

Types of Companies vary according to their ownership, and there are millions of companies across the globe having billions of employees. Before moving on to its types, let’s first understand what a company is! A company is a legal body that represents the association of people. These people can be naturally or legally linked with each other for some specific objectives under consideration. Additionally, the members of a company share the same interests and work to achieve some pre-declared goals.

Types of Companies

Moving on to the types of companies; the companies categorize as:

1. Private

2. Public

Private companies are the private sector organizations and the public ones are the public sector companies. A public sector organization further classifies as departmental undertakings, government companies and others. Now, let us move on to a more detailed understanding of the meaning of the private sector and public sector companies.

Private Sector Company 

A Private Sector business is an organization that is established for the motive of profit and is owned by a private individual or a group of individuals and enjoys very little government interference. The Private Sector is made up of households, businesses and organizations that include jobs in various areas such as retail, construction and manufacturing. They are owned and controlled by individuals or businesses, so companies in this category focus on entrepreneurial activity and take risks to create jobs and generate profits. You have the incentive to be competitive and efficient. 

That part of the economy that is owned, managed, and controlled by an individual or business is called the Private Sector. Private companies are categorized by size, such as SMEs and large companies being either private or listed companies. They can be created in two ways, either by starting a new business or privatizing a public company. In this sector, there is no job security for the employees as there is for the Public Sector employees. 

Public Sector Company 

The Public Sector refers to all governmental organizations, including federal, state, and local governments. Public Sector Organizations focus on services to the general public, including education, welfare,  legal systems, employment, natural resources and medical services. 

The sector responsible for providing government goods and services to the general public services such as unemployment benefits, child and family services, and insurance regulations are all part of the Public Sector. Companies, agencies and companies are wholly owned, controlled and supervised by the government, whether central, governmental or local. There are two types of public institutions. That is, either the state is fully funded from the income it earns from collecting taxes, surcharges, membership fees, etc., or the state holds 51% or more  of the total equity capital of its subordinates. Various ministries of the company. The company was founded with a service motive. Civil servants have employment security and receive severance pay such as allowances, benefits, bonuses, pensions and pension funds. This is the largest sector working on empowering people by providing them with the following services: 

Public Sector Organizations are of three forms:

1. Departmental undertakings

2. Public corporations/statutory corporations

3. Government company 

1. Departmental Undertakings:

Departmental organizations are one of the most ancient forms of public enterprises, and they are also known as a department of the government. The existence of these depends on the government and the ministry controls their work. The companies that are the departmental organizations are Railways, Post-service, some Telephone service, and others. Either the central or state government has full control over the working of this public sector organization. The treasury of the government has access to the revenue of departmental undertakings. Further, the annual budget of the government finances these Departmental Undertakings.

The best thing about this form of public enterprise is that the formation of a departmental undertaking is pretty easy, and it does not require any registration. The accountability of these organizations is also high as the parliament directly controls them, i.e., their matters get discussed in the parliament.

2. Public or Statutory Corporation:

Public or Statutory Corporations are the types of public sector formed by the parliament’s special action or state/central legislatures. Additionally, the government finances these types of public sector undertakings, and the legislature decides its objectives, powers, limitations and other rights. Public/ Statutory Corporations are – Indian airlines, State Bank of India, Oil & Natural Gas Corporation, etc.

A Statutory Corporation is a separate entity that forms legally, and it also automatically incorporates with the passing of any act in the Parliament. Either state or the central government decides the operations of statutory corporations. Moreover, nothing in these corporations happens behind their backs, thus ensuring that the public interests stay protected.

A Public Corporation independently manages its affairs with higher flexibility. It is also far away from red tape due to the lower file work and lesser need of the formalities before taking any major or minor decision.

3. Government Companies:

Government Companies are the types of public enterprises in which either state or central government holds a minimum of 51% of the paid shares. These types of public sector undertakings follow the provisions of the Companies act, just like the other registered ones. The Government Companies are Hindustan Machine tools, State Trading Corporation, etc.

The registration of the Government Companies accomplishes under 1956’s Companies Act, and all its provisions apply to them. As the government partially or wholly owns them, their shares are in the name of the president of the nation.

To manage these types of public sector undertakings, the government and other shareholders nominate the board of directors. Despite being controlled and managed by the government, it stays far away from political interference and is financed and audited, just like the other private sector companies.

Government Companies can also have access to the technical, management, and other expert skills of the private sector organizations by collaborating with them.

There are three methods for calculating national income namely Income Method, Expenditure method, and Value Added Method. In this article, we will understand the value-added method for calculating national income. The value-added method is used to calculate the national income in different stages of production in the circular flow. It represents the contribution (value-added) for each producing unit in the production process.

Every individual organization adds a certain value to the product, which it purchases from some other firm as intermediate goods. When the value added by every individual organization is summed up, we get the value of national income. 

What is the Value Added Method?

Value-added refers to the additional value to the raw material (intermediate goods) by an organization, using its production activities. It is calculated as the difference between the value of output and the value of intermediate goods. The value-added method is a widely used method for calculating national income as it avoids double counting, which is quite a serious error while estimating national income. 

Value Added: Value of Output – Value of Intermediate Goods ( Raw Materials)

What are the other Names of value added methods?

The value-added method for calculating national income is also known as:

Value Added Method Example

Suppose a baker requires only flour to produce goods. He purchases flour from the miller as an intermediate good worth Rs.30 and using its producing activities convert the flour into bread and sell the bread for Rs. 50.

In This Example:

Flour is an intermediate good and its value is Rs.30 and is known as the value of intermediate consumption.

Bread sold to the baker is output and intermediate consumption is known as value-added. It implies that the baker has added a value of Rs. 200 to the flow of final goods and services in the economy.

As we have discussed above, the difference between the value of output and the value of intermediate goods is termed as a value-added method. It implies that the baker has added a value of Rs. 20 to the total flow of final goods and services in the economy.

What Does Intermediate Consumption Mean?

The use of intermediate goods in the production process is termed intermediate consumption and expenditure on them is known as intermediate consumption expenditure. In the example given above, flour is an intermediate good for the baker. 

Flour is considered an intermediate good because its value is merged with the value of bread. However, any machinery purchased for baking bread is not considered as an intermediate consumption because its value will not be included in the value of intermediate consumption.

What Does the Value of Output Mean?

Value of output refers to the market value of all goods and services produced during one year. 

What are the Steps of Value Added Methods?

The main steps for estimating national income by the value-added method are:

Step 1: The first step is to recognize and classify all the producing units of an economy into primary, secondary, and tertiary sectors.

Step 2: In this step, we will calculate the Gross Domestic Product at Market Price (GDPMP).  For calculating (GDPMP), we will calculate Gross Value Added at Market Price (GVAMP) of each sector and total of (GVAMP)  gives (GDPMP) i.e. ∑GVAMP = GDPMP

Step 3:  Now, we will calculate domestic income (NDPFC). For calculating domestic income, we will subtract the amount of depreciation and net indirect tax from the Gross Domestic Product at Market Price (GDPMP). This means NDPFC  – Depreciation – Net Indirect Taxes.

Step 4: Now, we will calculate net factor income from abroad (NFIA) to get national income. In this step, NFIA is added to the domestic income to get the national income of the country i.e. NFIA + NDPFC = NNPFC

Precaution of Value Added Method

Following are the precautions to be considered in the value-added method:

1. Intermediate goods must not be added to the National Income as these are already added to the value of final goods. If included again, it will result in double counting.

2. Dealings (sale and purchase) of second-hand goods should not be included in this calculation. These goods are already included in the financial year in which they were produced, and they are not added to the current flow of goods and services. However, any brokerage fee or commission paid on any sale or purchase of such products are to be included in this calculation as it is a productive service.

3. Self-consumption services, i.e. domestic services like services of a housewife are not to be included in the national income calculation as it is challenging to figure out the market value of such work. These are produced and consumed within a household, and they do not enter the market. Therefore, these are regarded as non-market transactions. However, paid services like maids, drivers, etc. should be mentioned.

4. On the other hand, self-consumption goods should be counted in national income calculations because they contribute to the output of a financial year. However, their value is to be estimated as these products are never sold in the open market.

5. The estimated value of houses owned by individuals should be included. The reason is, owners who live in their own homes are enjoying similar housing services like people who live in rented places. Hence, the value of such services is estimated as per the market rate. This estimation is known as imputed rent.

6. Any changes in the inventory must be included in this calculation. Net increase in inventory stocks is involved in national income calculation as a part of capital formation.

Problems of Double Counting

While calculating national income, only the value of final goods and services is to be added. The problem of double counting occurs when the value of intermediate goods is also included with the value of final goods.

Double counting refers to the situation where the value of a product or expenditure is counted more than once. A commodity passes through the different stages of production before reaching the final stage. When the value of a commodity is calculated at each stage of production, it is likely to include the cost of input more than once. This situation leads to double counting.

Let us Understand with an Example:

Suppose, a farmer produces 70 kg of wheat and sells it to the miller  (flour mill) for Rs 700 to miller (flour mill). For farmers, wheat of Rs 700 is a final product. (If the intermediate cost for a farmer is zero, then his total value-added will be Rs 700).

For a miller (flour mill), wheat is considered as his intermediate good. Miller converts wheat into flour and sells it for Rs 900 to a baker. Now, flour of Rs 900 is a final product for the Miller. (Value added by miller = 900 – 700 = Rs 200)

For the baker, flour is considered as her intermediate good. Baker manufactures bread from flour and sells the entire bread to final consumers for Rs 1.100. Bread of Rs 1,100 is a final product for the baker. (Value added by baker = 11,00 – 900 = Rs 200)

In the given example, wheat is a final product for farmers, flour is the final product for the miller and bread is the final product for the baker. As a general rule, every producer treats his commodity as the final output. It means: Total value of output = 700 + 900 + 1,100 = Rs 2700. However, we can see in the given example that each transaction contains the value of intermediate goods.

Here, the value of wheat is included in the value of flour and the value of flour is included in the value of bread. As a result, the values of wheat and flour are counted more than once. This causes a double-counting issue as it leads to an overestimation of the value of goods and services produced. To calculate the value of national income precisely, we must avoid this problem of double counting.