Regulation Of Accounting Exam 4

Electronic banking

________________ is now being used as a substitute for checks and other paper transactions

Negotiable Instrument

Transfers money safely.

A written document signed by the maker that contains an unconditional promise or order to pay a fixed amount of money on demand or at a definite time to the bearer or to order.

Must contain no conditions that might in any way affect its payment

Must be payable in a fixed amount or sum certain of money.

This stipulation means an amount of money that is clearly known.

Must be made payable on demand or at a definite time; this requirement makes it possible to determine when the debtor or promisor can be compelled to pay.

Promise instruments

A written promise by one party, called the maker, to pay money to the order of another party, called the payee

Promissory Note ("I promise to pay.")

Order instruments

An instrument in which one party writes an instrument ordering a second party to pay money to a third party

Also called a bill of exchange

Check ("Pay this person.“)

Demand note

Payable whenever the payee demands payment

Time note

Payable at some future time, on a date named in the instrument

Installment note

The principal together with the interest on the unpaid balance is payable in installments at specified times

Certificate of deposit (CD)

An instrument containing an acknowledgment that a bank has received a sum of money and a promise by the bank to repay the sum of money

Drawee

The party required to pay the money

Drawer

The maker of the bill of exchange

Payee

The party that receives the money

Check

A draft drawn on a bank and payable on demand

Most common form of a draft

Certified check

A check that is guaranteed by the bank

The bank acknowledges and guarantees that sufficient funds will be withheld from the drawer’s account to pay the amount stated on the check

Money order

A type of draft that may be purchased as a substitute for a check.

Instead of being drawn on an individual’s account as is a check, however, a money order is drawn on the funds of the organization that issues it.

Be in writing.

Be signed by the maker or drawer.

Contain an unconditional promise or order to pay.

Be made out for a fixed amount of money.

Be payable on demand or at a definite time.

Except for checks, be payable to order or to bearer.

To be negotiable, instruments must:

Assignment

The transfer of a contract right from one person to another

Negotiation

The transfer of an instrument in such form that the transferee becomes a holder.

Holder

A person in possession of an instrument issued or indorsed to that person, to that person’s order, to bearer, or in blank.

protection

The person receiving the instrument is provided with more ____________ than was available to the person from whom it was received.

holder in due course

A special holder who may collect payment even when some problems exist in the original transaction. But some serious defenses still work against everyone, including an HDC

A _______________ is a holder who takes an instrument:

For fair value.

In good faith.

Without notice that anything is wrong with it.

Shelter provision

A holder who receives an instrument from a holder in due course acquires the rights of the holder in due course, even though he or she does not qualify as a holder in due course.

Designed to permit holders in due course to transfer all of the rights they have in the paper to others.

Breach of contract

The party to whom the instrument was issued breaches the contract by failing to perform or by performing in an unsatisfactory manner

Lack of consideration

Defense used when no consideration existed in the underlying contract for which the instrument was issued.

Failure of consideration

Defense that the maker or drawer may use when the other party breaches the contract by not furnishing the agreed consideration.

Payment of an instrument

________________ by a maker or drawee usually ends the obligations of the parties. However, if a negotiable instrument is negotiated to a holder in due course after it has been paid, it will have to be paid again.

Duress

The instrument was drawn against the will of the maker or drawer because of threats of force or bodily harm

Bankruptcy

An order for relief was issued by the federal court that ended all the debtor’s outstanding contractual obligations

Unauthorized signature

Someone wrongfully signed another’s name on an instrument without authority to do so.

Material alteration

The amount of the instrument or the payee’s name was changed wrongfully after it was originally drawn by the maker or drawer

The maker of a note.

The issuer of a cashier’s check or other draft in which the drawer and the drawee are the same person.

The acceptor of a draft.

The following are obligated to pay an instrument without reservations of any kind:

Notice of dishonor

May be given by any reasonable means, including oral, written, or electronic communication.

Is sufficient if it reasonably identifies the instrument and indicates that the instrument has been dishonored or has not been paid or accepted.