Check

Definition

A check is a written, dated, and signed instrument that contains an unconditional order directing a bank to pay a definite sum of money to a payee. The person or entity writing the check is known as the drawer, while the person to whom the check is written is the check’s payee. It serves as a legal document that authorizes the bank to withdraw funds from the drawer’s account and pay that amount to the payee.

Phonetic

The phonetic spelling of the word “Check” is /tʃɛk/.

Key Takeaways

1. What is a bank check? A written, dated, and signed request for a bank to pay a specific amount of money to the individual specified on the check is known as a bank check. When you write a check, you are essentially authorizing the bank to withdraw the specified amount of money from your account and pay the individual listed on the check.
2. How to write a bank check: When writing a bank check, it’s important to have the following in mind:
   1. Make sure to include the date, the name and address of the payee, the amount of the check, and your signature, among other details.
   2. Put the check’s amount in both words and figures.
   3. Keep your account from being overdrawn.
3. How to cash a bank check. You can bring a bank check to a bank or credit union to get it cashed. Both your identification and the cheque itself must be shown. After the check has been verified, the bank will pay you the money.

Importance

A check is an important financial instrument that plays a key role in the non-cash payment system. It is a written, dated, and signed instrument that contains an unconditional order from the drawer (the person who has written the check) that directs a bank to pay a definite sum of money to the bearer (the person to whom the check is issued). This provides a convenient way to transfer money without physically carrying cash, thus adding a level of security to financial transactions. Checks also offer an easy way for businesses to keep track of expenses for accounting purposes, reducing potential errors and discrepancies. Moreover, some transactions and businesses prefer or require checks because of the delay of final payment which affords payers more control over their accounts. For these reasons, checks remain an important part of the business and finance world, even in an increasingly digital age.

Explanation

A check serves an important role in various financial transactions, enabling a safe and documented exchange of money between parties. It is a written document that instructs a bank or other financial institution to pay a specific amount of money from a person’s account to the person or entity named on the document, therefore ensuring a secure transfer of funds. It helps to eliminate the need for individuals to carry large sums of money, making transactions safer. Checks are also beneficial owing to their traceability, making them useful for record-keeping purposes. When used to pay for goods or services, for instance, a cancelled check can serve as a proof of payment. Businesses, too, often use checks to pay operational expenses like salaries, bills, and other costs as they can easily track and manage their outgoing finances. While facing competition from electronic payment methods, checks remain a viable payment method trusted for its security and familiarity.

Examples

1. Paying with a personal check: One common use of checks that many individuals carry out on a routine basis involves paying for goods or services by writing a personal check. For example, a person might write a check for groceries at a local grocery store. This is a direct payment method where the money will be drawn from the check writer’s bank account. 2. Payroll checks: In many businesses, employees are often paid via checks. The organization writes a check to the employee for the services they have rendered during a particular time period. The employee then deposits this check into their bank account. For example, a teacher being paid monthly salary through a paycheck from their school district. 3. Rent payment: Many tenants choose to pay their rent using checks. For example, instead of paying cash or making a direct deposit, a renter might write a monthly check to their landlord. This is often a preferred method because it provides a paper trail and can help avoid disputes regarding whether payment was made.

Frequently Asked Questions(FAQ)

Related Finance Terms

• Payee
• Drawer
• Bank Reconciliation
• Overdraft
• Endorsement

Sources for More Information

• Investopedia
• The Economic Times
• AccountingTimes
• Bankrate