Cancelled Cheque

A cancelled cheque is a cheque that has been marked as void or cancelled by the account holder or the issuing bank. In accounting and finance, a cancelled cheque is usually used as a proof of account ownership and to validate the account holder’s identity. The term ‘cancelled cheque’ can also be used to refer to a cheque that has been returned by the bank due to insufficient funds, a closed account, or any other discrepancies.

Importance of cancelled cheque:

Proof of account ownership: A cancelled cheque serves as a valid proof of account ownership for various financial transactions, such as loan applications, investments, and other financial services.
Account verification: It helps in verifying the account holder’s details like name, account number, and bank’s MICR code.
Prevents fraud: As a cancelled cheque cannot be cashed or deposited, it reduces the chances of fraud and misuse.

Types of cancelled cheque:

Self-cancelled cheque: When the account holder marks the cheque as cancelled by writing “CANCELLED” across it without any alterations.
Bank-cancelled cheque: When the bank cancels the cheque due to reasons like insufficient funds, closed account, or any other discrepancies.

Formula on cancelled cheque: There isn’t a specific formula related to cancelled cheques. However, it is essential to mark the cheque with the word “CANCELLED” clearly across the face of the cheque, without making any other changes or alterations to the cheque.

Examples of cancelled cheque:

An individual submitting a cancelled cheque as proof of account ownership while applying for a loan.
A company requiring a cancelled cheque to verify an employee’s bank account for salary disbursement.

Issues and limitations of cancelled cheque:

Misuse: If a cancelled cheque falls into the wrong hands, it can be misused to extract sensitive account information.
Limited utility: Cancelled cheques can only be used for specific purposes like account verification and proof of ownership. They cannot be used for making payments or clearing dues.
Inadequate cancellation: If the cancellation is not done correctly, the cheque might still be misused or considered valid by mistake.
Digital alternatives: With the increasing use of digital banking and electronic fund transfers, the relevance of cancelled cheques has been gradually decreasing.

It is important to handle cancelled cheques with care and ensure that they are disposed of properly to prevent any misuse of sensitive information.