Lecture Notes Banking Chapter 4 McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning unit objectives LU 4-1: The Checking Account Define and state the purpose of signature cards, checks, deposit slips, check stubs, check registers, and endorsements. Correctly prepare deposit slips and write checks. LU 4-2: Bank Statement and Reconciliation Process; Latest Trends in Mobile Banking Explain the trends in the banking industry. Define and state the purpose of the bank statement. Complete a check register and a bank reconciliation. Explain the trends in online banking pro and con.

Lecture Notes for Chapter 4-1 This section begins with a discussion of the checking account. A check or draft is a written order instructing a bank, credit union, or savings and loan institution to pay a designated amount of your money on deposit to a person or an organization.

Checks/Drafts Drawer - One who writes the check Drawee – Bank ordered to pay Payee - To whom check is payable

Checks/Drafts Checking accounts are offered to individuals and businesses. The business checking account usually receives more services than the personal checking account but may come with additional fees. Most small businesses depend on a checking account for efficient record keeping. Once the check is written, the writer must keep a record of the check. Business checkbooks usually include attached check stubs to keep track of written checks. Some companies use a check register to keep their check records instead of check stubs.  Knowing the amount of your written checks and the amount in the bank should help you avoid writing a bad check.

Opening the Checking Account One of the first steps in establishing a financial history is through opening a bank account. Each financial institution offers different types of checking accounts, including electronic checking. Step 1- Fill out a   signature card. The signature card contains space for the names of account holders and addresses, references, type of account, and the signatures of the persons authorized to sign checks. Step 2- complete and record a deposit slip. Deposit slip is a document that shows date, name, account number, and items making p a deposit.

Deposit Slip Figure 4.1 In figure 4-1 we see how to complete and record a deposit slip (or deposit ticket) for checks and/or cash depositing in an account.

How to write a Check Before writing any checks, you must understand the structure of a check and know how to write a check. Carefully study Figure 4.2 . Note that the verbal amount written in the check should match the figure amount. If these two amounts are different, by law the bank uses the verbal amount. Also, note the bank imprint on the bottom right section of the check. When processing the check, the bank imprints the check's amount. This makes it easy to detect bank errors.

The structure of a check Figure 4.2

Check Stub Once the check is written, the writer must keep a record of the check.

Check Register Some companies use a check register to keep their check records instead of check stubs RECORD ALL CHARGES OR CREDIT THAT AFFECT YOUR ACCOUNT Number Date Description of Transaction Payment/Debit x Fee Deposit/Credit Balance 2009 15,136 24 633 3/8 Staples Co. 6,000 00 -6,000 00 9,136 24 634 3/9 Health Food, Inc. 1,020 00 -1,020 00 8,116 24 3/9 Deposit 389 20 +389 00

Practice

S0lution For step by step solution watch the video for LU 4-1 ( Go to: McGraw-Hill’s Connect;Assignment # 1;Question 1; Click the eBook & resources options drop down menu; Click The checking Account; scroll down to LU4-1 and click 

examples 4-1 Fill out the check register that follows with this information 2013 July 7 Check No. 482 AOL $143.50 15 Check No. 483 Staples 66.10 19 Deposit 800.00 20 Check No. 484 Sprint 451.88 24 Check No. 485 Krispy Kreme 319.24 29 Deposit 400.30

4-1

Solution for 4-1

4-2 November 1, 2013, Payroll.com, an Internet company, has a $10,481.88 checkbook balance. Record the following transactions for Payroll.com by completing the two checks and check stubs provided. Sign the checks Garth Scholten, controller. a. November 8, 2013, deposited $688.10 b. November 8, check No. 190 payable to Staples for office supplies—$766.88 c. November 15, check No. 191 payable to Best Buy for computer equipment—$3,815.99.

Solution for 4-2

ADDITIONAL WORD PROBLEMS 1-Pete Moore opened a no-frills checking account at the East Cambridge Savings. The service charge for the checking account is $2 per month plus 25 cents per check. Assuming Pete writes 8 checks per month, what will this no-frills checking account cost him for the year? 8 × $.25 = 2; 2+2 = 4 ; 4× 12 = 48 2-The check register of Moore Co. showed a beginning balance of $625.10. During the month, checks were written for $55.42, $38.29, and $66.75, while Moore made one deposit for $355.08. What is the end of the month balance? $625.10 + $355.08 – $55.42 – $38.29 – $66.75 = $819.72 3-Bill Smith has a money market account that showed a beginning balance of $20,578.85. For the month, the account earned interest of $103.81. During the month, Bill wrote checks from the account for $454.80 and $4,885.34. He is allowed to write up to three checks per month from this account. What is the correct balance of the account? $20,578.85 + $103.81 – $454.80 – $4,885.34 = $15,342.52  

Can be further endorsed Endorsements Before you deposit a check you must sign the back left side, or endorse (transfer of ownership to another party) the check. There are three types of endorsements Blank Full Restricted Pay to the order of Ipswich Bank For deposit only Gracie’s Natural Superstore 88190662 Pay to the order of Ipswich Bank Gracie’s Natural Superstore 88190662 Gracie’s Natural Superstore 88190662 Only person or company named in the endorsement can transfer the check to someone Limits any further negotiation of the check Can be further endorsed

Lecture Notes for Chapter 4-2 Bank Statement Each month, Bank sends a bank statement. A statement of different types of activity that have taken place during the month. We are interested in the following: 1-Beginning bank balance. 2-Total of all the account increases. Each time the bank increases the account amount, it credits the account. 3-Total of all account decreases. Each time the bank decreases the account amount, it debits the account. 4-Final ending balance. Credit: increases the account + Debit: decreases the account —

Bank Reconciliation Due to differences in timing, the bank balance on the bank statement frequently does not match the customer's checkbook balance. Also, the bank statement can show transactions that have not been entered in the customer's checkbook.  To reconcile the difference between the amount on the bank statement and in the checkbook, the customer should complete a bank reconciliation. (The process of comparing the bank-balance to the check-book balance so adjustments can be made. Bank Statement Checkbook  Next slide tells you what to look for when comparing a checkbook balance with a bank balance.

Reconciliation Checkbook Balance +EFT (electronic funds transfer) +Interest earned +Notes collected +Direct deposit -ATM withdrawals -Automatic withdrawals -NSF check -Online fees -Automatic payments -Overdrafts -Service charges -Stop payments +/-Book errors Bank Balance +Deposit in transit -Outstanding checks +/-Bank errors Bank Statement Checkbook

Five Steps in Reconciling Account

Practice Rosa Garcia received her February 3, 2013, bank statement showing a balance of $212.80. Rosa's checkbook has a balance of $929.15. The bank statement showed that Rosa had an ATM fee of $12.00 and a deposited check returned fee of $20.00. Rosa earned interest of $1.05. She had three outstanding checks: No. 300, $18.20; No. 302, $38.40; and No. 303, $68.12. A deposit for $810.12 was not on her bank statement. Prepare Rosa Garcia's bank reconciliation.

Solution For step by step solution watch the video for LU 4-2 ( Go to: McGraw-Hill’s Connect; Assignment # 1; Question 2; Click the eBook & resources options drop down menu; Click Bank Statement and Reconciliation Process; scroll down to LU4-2 and click

Examples 4-3Using the check register in Problem 4–1 and the following bank statement, prepare a bank reconciliation for Lee.com. Solution

Examples 4-4The World Bank forecasts growth of world trade to be 4.7% in 2012, down from 12.4% in 2010. This change has caused Peru’s Apple Blossom Florist to analyze its current financial situation, beginning with reconciling its accounts. Apple Blossom received its bank statement showing a balance of $8,788. Its checkbook balance is $15,252. Deposits in transit are $3,450 and $6,521. There is a service charge of $45 and interest earned of $3. Notes collected total $1,575. Outstanding checks are No. 1021 for $1,260 and No. 1022 for $714. All numbers are in U.S. dollars. Help Apple Blossom Florist reconcile its balances. Solution:

Examples 4-5The U.S. Chamber of Commerce provides a free monthly bank reconciliation template at business.uschamber.com/tools/ bankre_m.asp. Annie Moats just received her bank statement notice online. She wants to reconcile her checking account with her bank statement and has chosen to reconcile her accounts manually. Her checkbook shows a balance of $698. Her bank statement reflects a balance of $1,348. Checks outstanding are No. 2146, $25; No. 2148, $58; No. 2152, $198; and No. 2153, $464. Deposits in transit are $100 and $50. There is a $15 service charge and $5 ATM charge in addition to notes collected of $50 and $25. Reconcile Annie’s balances. Solution:

Examples 4-6 A local bank began charging $2.50 each month for returning canceled checks. The bank also has an $8.00 “maintenance” fee if a checking account slips below $750. Donna Sands likes to have copies of her canceled checks for preparing her income tax returns. She has received her bank statement with a balance of $535.85. Donna received $2.68 in interest and has been charged for the canceled checks and the maintenance fee. The following checks were outstanding: No. 94, $121.16; No. 96, $106.30; No. 98, $210.12; and No. 99, $64.84. A deposit of $765.69 was not recorded on Donna’s bank statement. Her checkbook shows a balance of $806.94. Prepare Donna’s bank reconciliation. Solution:

Trends in Banking Industry Since 2008 trends in banking have been changing rapidly. The government has been involved in many bailout packages due to the financial crises. Some banks have had to close or merge. Check textbook website for the latest updates on banking bailouts and government intervention: www.mhhe.com/slater11e.

Trends in Online Banking Pros and Cons Many online savings accounts are paying 4.4% interest Online accounts, like all bank accounts, are protected by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per account holder CONS Delay in transferring funds between accounts up to four days The bank will hold up a transfer of funds because it wants to make sure our funds are good before it lets us have them