CHAPTER 4 Banking

Make account transactions. Record account transactions. 4-1 Learning Outcomes Make account transactions. Record account transactions.

Make account transactions 4-1-1 Make account transactions Section 4-1 Checking Account Transactions Various checking account forms or records provide written documentation of the funds that flow into and out of the account. A transaction is a banking activity that changes the amount of money in a bank account. Funds going into the account are deposits and are recorded as a credit to the account. A deposit ticket is needed to support the transaction.

Make an account deposit HOW TO: Make an account deposit Section 4-1 Checking Account Transactions Record the date. STEP 1 STEP 2 Enter the amount of currency and/or coins being deposited. STEP 3 List the amount of each check to be deposited including an identifying name or company.

Make an account deposit HOW TO: Make an account deposit Section 4-1 Checking Account Transactions Add the currency, coins and checks. STEP 4 STEP 5 If the deposit for a personal account and you need some money in cash, enter that amount on the line “less cash received” and sign on the appropriate line. STEP 6 Subtract the amount of cash received from the total for the net deposit.

If there is a mistake in the deposit: HOW TO: Make an account deposit Section 4-1 Checking Account Transactions The bank will issue a bank memo. An increase in the balance (or in your favor) is called a credit memo. A decrease in the balance (or in the bank’s favor) is called a debit memo.

A credit memo. Examples… Section 4-1 Checking Account Transactions Suppose Janice’s bank initially cleared a check for $174.00 which Janice actually wrote for $147.00. Would she receive a credit memo or a debit memo once the bank detected its error? A credit memo.

Section 4-1 Checking Account Transactions Businesses that permit customers to use credit cards to charge merchandise ordinarily receive payment through electronic deposit from the credit card or check processing company. Sometimes called point-of-sale transactions. Visa®, MasterCard® and Discover® are examples of major credit card companies that electronically transmit funds to business accounts. Electronic funds transfers (EFTs).

Another type of electronic deposit is direct deposit for payroll. Section 4-1 Checking Account Transactions Another type of electronic deposit is direct deposit for payroll. Employees can access their paycheck funds directly from their accounts.

One bank record for withdrawals is a check or bank draft. Section 4-1 Checking Account Transactions A withdrawal is a transaction which reduces the amount of funds in the account. These transactions are called debits. One bank record for withdrawals is a check or bank draft. Another type of debit is through the use of a debit card to pay for goods and services. Withdrawing funds from an ATM will also result in a debit to the account.

Payee Payor Maker Automatic Drafts Key Terms… Key Terms Section 4-1 Checking Account Transactions Payee The one to whom the money on a check is paid. Payor The bank or institution that pays the amount of the check to the payee. Maker The one authorizing the payment of the check. Automatic Drafts Regular withdrawals that the owner of an account authorizes to be made electronically.

Personal identification number (PIN) Key Terms… Key Terms Section 4-1 Checking Account Transactions Signature card: Signature of those authorized to sign the checks for a given account. Personal identification number (PIN) A private code that is used to authorize a transaction on a debit card or ATM card.

Identify the elements of a check Section 4-1 Checking Account Transactions

Enter the date of the check. STEP 1 HOW TO: Make a withdrawal with a check Section 4-1 Checking Account Transactions Enter the date of the check. STEP 1 STEP 2 Enter the name of the payee. STEP 3 Enter the amount of the check in numerals.

Explain the purpose of the check. HOW TO: Make a withdrawal with a check Section 4-1 Checking Account Transactions Write the amount of the check in words. Cents can be written as a fraction of a dollar or decimal notation. STEP 4 STEP 5 Explain the purpose of the check. STEP 6 Sign the check.

Identify the elements of a check Key Terms… Section 4-1 Checking Account Transactions Check stub A form attached to the check for recording account transactions that show the account balance. Account register A separate form for recording all checking account transactions. It also shows the account balance.

Record account transactions 4-1-2 Record account transactions Section 4-1 Checking Account Transactions Individuals and businesses with banking accounts must record all transactions made to the account. Make an entry for every account transaction. For checks and other debits… Enter the date, amount of the check/debit, the person or company receiving the check/debit, and the purpose of the check/debit Subtract the amount of the check or debit from the previous balance to obtain the new balance. For handwritten checks with stubs, carry the new balance forward to the next stub.

Record account transactions 4-1-2 Record account transactions Section 4-1 Checking Account Transactions Individuals and businesses with banking accounts must record all transactions made to the account. Make an entry for every account transaction. For deposits and other credits… Enter the date, the amount of the deposit or credit, and a brief explanation of the deposit or credit. Add the amount of the deposit or credit to the previous balance to obtain the new balance.

Record account transactions 4-1-2 Record account transactions Section 4-1 Checking Account Transactions Individuals and businesses with banking accounts must record all transactions made to the account. Make an entry for every account transaction. On an electronic money management system… Enter the appropriate details for producing a check. Record other debits and all deposits and credits. The account register is maintained by the system automatically. For business accounts or personal accounts used for tracking expenses, record the type of expense or budget account number

Endorsements Section 4-1 Checking Account Transactions Banks will require payees who are not account holders to present identification before cashing a check from their bank. Account holders will be required to sign the check and also record their account number on the back of the check.

Restricted endorsement Key Terms… Section 4-1 Checking Account Transactions Endorsement A signature, stamp or electronic imprint on the back of a check that authorizes payment in cash or directs payment to a third party or account. Simple endorsement The payee signs or stamps the back of the check to deposit the amount in an account or to cash the check. Restricted endorsement A type of endorsement that reassigns the check to a different payee, or directs the check to be deposited in a specified account.

HOW TO: Restricted Endorsements Section 4-1 Checking Account Transactions In a restricted endorsement, the original payee writes “pay to the order of,” lists the name of the new payee, and signs the check. Another type uses the phrase “for deposit only,” and listing the account number—without actually signing or endorsing the check. These measures are intended to provide greater security when handling checks.

Reconcile a bank statement with an account register. 4-2 Learning Outcome 4.2 Reconcile a bank statement with an account register.

Reconcile a bank statement with an account register 4-2-1 Section 4-2 Bank Statements Financial institutions provide account statements to their checking account customers. To enable them to reconcile any differences between that statement and the customer’s own account Any transactions that had not been posted at that time are considered “outstanding” and are taken into account during this process.

Bank reconciliation Bank statement Service charge Key Terms… Section 4-2 Bank Statements Bank reconciliation The process of making the account register agree with the bank statement. Bank statement An account record provided by the bank periodically designed to match your records to the bank’s records. Service charge A fee the bank charges for maintaining the checking account or for other banking services.

Returned check Returned check fee Key Terms… Section 4-2 Bank Statements Returned check A deposited check that was returned because the maker’s account did not have sufficient funds. Returned check fee Bank charges to the depositor for returned checks.

NOTE: Non-sufficient fund fee Key Terms… Section 4-2 Bank Statements Non-sufficient fund fee A fee charged to the account holder when a check is written for which there are not sufficient funds. When a check is returned NSF, there are sometimes two penalties – one the bank charges, and another by the payee who was unable to collect the money. NOTE:

NOTE: Outstanding checks Outstanding deposits Key Terms… Section 4-2 Bank Statements Outstanding checks Checks that have been written, but have not yet been posted to the maker’s account. Outstanding deposits Deposits that have been made, but have not yet been posted to the maker’s account. When reconciling your account, be sure to note any bank fees (for returned checks, service charges, etc.) on your account register. NOTE:

HOW TO: Reconcile a bank statement Section 4-1 Checking Account Transactions Check off all matching transactions appearing on both the bank statement and the account register. STEP 1 STEP 2 Enter into the register the transactions appearing on the bank statement, but not checked off. Check off these transactions as they are entered and update the register balance accordingly. This is the adjusted register balance.

Make a list of checks and HOW TO: Reconcile a bank statement Section 4-1 Checking Account Transactions Make a list of checks and debits in the register that have not been checked off. Add these amounts to find the total outstanding debits. STEP 3 Use Figure 4-25 as a guide.

Add these amounts to find the total outstanding credits. STEP 4 HOW TO: Reconcile a bank statement Section 4-1 Checking Account Transactions Make a list of all deposits & credits in the register that have not been checked off. Add these amounts to find the total outstanding credits. STEP 4 Use Figure 4-25 as a guide.

HOW TO: Reconcile a bank statement Section 4-1 Checking Account Transactions Calculate the adjusted statement balance by adding the statement balance and total outstanding deposits & credits, and then subtracting total outstanding checks and other debits. STEP 5 Statement balance + Total outstanding credits - Total outstanding debits Adjusted statement balance

HOW TO: Reconcile a bank statement Section 4-1 Checking Account Transactions Compare the adjusted statement balance with the adjusted register balance. The amounts should be equal. STEP 6 STEP 7 If the adjusted statement balance does not equal the register balance, find the cause of the difference and correct the register, or notify the bank accordingly. Step 8 Write statement reconciled on the next blank line in the account register and record the statement date.

HOW TO: Reconcile a bank statement Section 4-1 Checking Account Transactions Step 8 Write statement reconciled on the next blank line in the account register and record the statement date.

Exercises Set A

EXERCISE SET A 2. Write a check dated June 12, 20XX, to Alpine Industries in the amount of $85.50 for building supplies. Complete the check stub.

EXERCISE SET A 4. Enter the following information and transactions in the check register for Happy Center Day Care On July 10, 20XX, with an account balance of $983.47, the account debit card was used at Linens, Inc., for $220 for laundry services. Check 1214 was written to Bugs Away for $65 for extermination services. On July 11, $80 was withdrawn from an ATM. On July 12, checks in the amounts of $123.86, $123.86, and $67.52 were deposited. Show the balance after these transactions.

EXERCISE SET A 4. On July 10, 20XX, with an account balance of $983.47, the account debit card was used at Linens, Inc., for $220 for laundry services.

EXERCISE SET A On July 10; check 1214 was written to Bugs Away for $65 for extermination services.

On July 11, $80 was withdrawn from an ATM. EXERCISE SET A On July 11, $80 was withdrawn from an ATM.

EXERCISE SET A On July 12, checks in the amounts of $123.86, $123.86, and $67.52 were deposited. Show the balance after these transactions.

Tree Top Landscape Service’s bank statement is shown. EXERCISE SET A Tree Top Landscape Service’s bank statement is shown. What amount of service charge was paid? $0 How many checks appear on the bank statement? four

Tree Top Landscape Service’s bank statement is shown. EXERCISE SET A Tree Top Landscape Service’s bank statement is shown. 10. What is the balance at the end of the statement period? $4,675.50 12. On what date did check 717 clear the bank? 7/7

EXERCISE SET A 14. The July bank statement for A & H Iron Works shows a balance of $37.94 and a service charge of $8.00. The account register shows deposits of $650 and $375.56 that do not appear on the statement. Checks in the amounts of $217.45, $57.82, $17.45, and $58.62 are outstanding. The register balance before reconciliation is $720.16. Reconcile the bank statement with the account register using the form in Figure 4-49 .

Practice Test

D.G. Hernandez Equipment’s bank statement is shown. PRACTICE TEST D.G. Hernandez Equipment’s bank statement is shown. 2. What is the balance at the beginning of the statement period? $5,283.17 4. What was the service charge for the statement period? $0

6. On what date did check 3788 clear the account? PRACTICE TEST 6. On what date did check 3788 clear the account? 3/15 8. What was the balance at the end of the statement period? $6,982.68

PRACTICE TEST