In general words, kiting means to fly the kite. It is legal and part of the fun of our children. But in accounting, it is fraud which is done by writing the cheque. When your bank account shows you low amount. After knowing this, you issue the cheque of higher amount for paying someone. It will become fraud.
You can do this fraud for two reasons :-
1. One you think, it is outstation cheque and your creditor will clear within 10 to 15 days, you issue the cheque with greater amount than what is actually in your bank account. Within 10 to 15 days, you try to deposit difference but this is not any issue. At the time of writing amount in cheque, if there is no such balance in your bank account, it will become check kiting fraud.
2. Second, you start to play the game of check circulation. You and your team of cheaters wrote the checks on each other. You and your team did not deposit extra or new money in their bank accounts. Now, you took the loan or products on credit from someone. Your bank account no money but your bank is showing some money you have to collect through check from someone which is the part of your cheater team. There is more chance, bank may wait for this and you can get its financially benefit. But if bank finds this is just game of cheating someone, bank will dishonor your check without any waiting.
In USA, kiting is criminal offence. You can get up to 30 years imprisonment or you have to pay $ 1 million as fine.
Talk with 2 Bank Officer on This Issue
Recently, I talked on mobile with my two friends who are the bank officers. Both have accepted these type of fraud but they also told that their banks are very serious on this issue. They will take the action of dishonor the check of the party when they see less money and they have strict rules regarding this because the party who have to take money can also claim on bank for loss of his interest.
Accounting Treatment when Kiting Fraud will Capture
At that time, check will be dishonor and same entry will be passed which we pass at the time of dishonor of any check.
In the books of Creditor
Debtor Account Dr.
Bank Account Cr.
In the books of Debtor
Bank Account Dr.
Creditor Account Cr.
Related : What is CMA Data in Banking
You can do this fraud for two reasons :-
1. One you think, it is outstation cheque and your creditor will clear within 10 to 15 days, you issue the cheque with greater amount than what is actually in your bank account. Within 10 to 15 days, you try to deposit difference but this is not any issue. At the time of writing amount in cheque, if there is no such balance in your bank account, it will become check kiting fraud.
2. Second, you start to play the game of check circulation. You and your team of cheaters wrote the checks on each other. You and your team did not deposit extra or new money in their bank accounts. Now, you took the loan or products on credit from someone. Your bank account no money but your bank is showing some money you have to collect through check from someone which is the part of your cheater team. There is more chance, bank may wait for this and you can get its financially benefit. But if bank finds this is just game of cheating someone, bank will dishonor your check without any waiting.
In USA, kiting is criminal offence. You can get up to 30 years imprisonment or you have to pay $ 1 million as fine.
Talk with 2 Bank Officer on This Issue
Recently, I talked on mobile with my two friends who are the bank officers. Both have accepted these type of fraud but they also told that their banks are very serious on this issue. They will take the action of dishonor the check of the party when they see less money and they have strict rules regarding this because the party who have to take money can also claim on bank for loss of his interest.
Accounting Treatment when Kiting Fraud will Capture
At that time, check will be dishonor and same entry will be passed which we pass at the time of dishonor of any check.
In the books of Creditor
Debtor Account Dr.
Bank Account Cr.
In the books of Debtor
Bank Account Dr.
Creditor Account Cr.
Related : What is CMA Data in Banking
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