Chapter 5 – The Banking System

Lesson 5-1: Checking AccountsLearning Goals:-Explain the purpose and use of a checking account.-Prepare checks and deposit slips and maintain a checkbook register.-Prepare a bank reconciliation and understand account fees and choices.

Checking Accounts• What is a checking account?• A checking account is a demand deposit account on which checks are drawn.• It is a demand deposit because the account holder may withdraw money on demand or write checks

on the account at any time.

• What is the purpose of a checking account?• It provides a safe place to keep money and allows users easy access to the money in the

account.

• Most people have checking account for the convenience of paying bills by mail. It is not safe to send cash through the mail.

• What is a check?• A check is a written order to a bank to pay a stated amount to a person or business.

• A cancelled check is a check that has been processed and also serves as proof of payment for bills and purchases.

The Checkbook Register

• A checkbook register is a tool that can be used to track checking account transactions.

• All deposits, checks, other withdrawals, and fees should be recorded in the checkbook register.

• The purpose of the transaction can also be recorded

• A running balance in the register shows the amount of money in the account.

Checkbook Register• First column – enter the check number or special code

• DEP – Deposit, WD – Withdrawal, ON – Online Payment, DC – Debit Card• Date Colum – Enter date of transaction• Description of Transaction – Enter the name of the person or business to whom the check is written - can

also include purpose. • Debit – Check or Withdrawal Amount, Fee – Bank Fees, Credit – Deposit• Balance – Running total. Subtract Debits and Fees, Add Credits

Checkbook Register• Ck 217 – 9/2/2015 • Lynn Theatre – movie

• $12.50• Deposit – 9-10/2015• Paycheck

• $198.67• Ck 218 – 9/12/2015• Trading Post – food

• $19.95• Ck 219 – 9/14/2015• Farnik’s Market – food

• $23.45

WD 8/30/2015 ATM Withdrawal 40.00 40.00

281.83

217 9/2/2015 Lynn Theatre – movie 12.50 12.50

169.33

DEP 9/10/2015 Deposit – Paycheck 198.67 198.67

368.00

218 9/12/2015 Trading Post – food 19.95 19.95

348.05

219 9/12/2015 Farnik’s Market - food 23.45 23.45

324.60

What is a withdrawal?

• A withdrawal is taking money out of the account.

• To make a withdrawal the account holder can write a check, us a debit card, withdraw cash at an ATM machine, or set up a bill to be paid each month automatically.

Writing checks1. Enter the current date. Checks should not be postdated.

2. Enter the name of the payee on the “Pay to the Order of“ line.A postdated check is a check written with a date that will occur in the future.

3. Enter the amount of the check in numbers after the dollar sign.

4. Write the dollar amount in words. Do not leave extra space.

5. Sign your name.

6. Enter a description.Feb. 18 15

Farnik’s Market 25.32

Twenty-five and 32/100 --------------------------------

Tami Heiser

groceries

Practice Writing Checks• Ck 217 – 9/2/2015 • Lynn Theatre – movie

• $12.50• Ck 218 – 9/12/2015• Trading Post – food

• $19.95• Ck 219 – 9/14/2015• Farnik’s Market – food

• $23.45

Using Debit Cards• A Debit Card is a card used to withdraw or deduct money from

your checking account.

• Allows you to make purchases by swiping the card at a store’s checkout counter.

• Allows you to withdraw cash at an ATM machine• Must also enter a PIN (personal identification number) or password.• The PIN gives access to the account, so it must be guarded carefully.

• If a debit card is stolen, funds can be removed from your account.

• Debit cards should not be used for online purchases.

Protecting your Account

• Check fraud occurs when someone alters a check by changing its amount to obtain more money.• Write checks in a proper manner

• Forgery is the act of signing another person’s name on a check.• Keep unused checks in a safe location

• Protect you PIN or password and account numbers.• Do not give out your bank account number unless you are sure the

person or company receiving it is reputable.

Making Deposits

• Use a deposit slip to deposit money.

• Deposit slips come with your checks.

• The bank also has deposit slips you can use.

Endorsing Checks• Checks must be properly endorsed when deposited.• An endorsement is a signature written on the back of a check. 3 types of

endorsements:• Blank endorsement – just a signature of the payee• Restrictive endorsement – restricts what can be done with the check. Ex. For

deposit only along with signature.• Special endorsement – transfers the right to cash the check to someone else. This

makes the check a third party check.

Tami Heiser For deposit only Tami Heiser

Pay to the order of Angie Guenther Tami Heiser

Direct Deposits• With a direct deposit, wages or benefits are automatically

deposited into a bank account electronically.

• An electronic funds transfer (EFT) uses a computer-based system to move money from the drawer’s account to the payee’s account.

• EFT’s are used for automatic withdrawals and deposits.

• What might be directly deposited into an account?• Paycheck• Social Security checks• Income Tax Refunds• Other government payments.

Practice Filling out a Deposit Slip

• Use the deposit for 9/10/15 in your register.

• Endorse your check with a restricted endorsement.

Check your work

9-10 15paycheck 198 67

198 67

198 67

For deposit only (your name)

15198 67

198 67

198 67

What does it mean to reconcile your bank statement?• Every month you will receive a statement from the bank.• The statement will list checks, other withdrawals, and deposits made

to the account during the month.

• Need to reconcile your check register with the bank statement – the process of adjusting the checkbook register and bank statement balances so that they agree.• Adjust the balance shown in the checkbook register to record interest

earned or fees charged. • Adjust the balance of the bank for check or other withdrawals and

deposits that have not been processed by the bank.• After adjustments are made, the two balances should be the same.

Preparing a Bank Reconciliation

1. Enter the date of the reconciliation and the account number on the reconciliation form.

2. Enter the ending balance date and amount from the bank statement on the reconciliation form. The amount probably will nto be the same as the balance shown in your checkbook register.

3. Compare your checkbook register with the bank statement. Verify that the amount of each deposit made is shown correctly on the bank statement. Place a check mark in the check mark column of the register by each deposit that is shown on the bank statement.

Preparing a Bank Reconciliation

4. On the reconciliation form, list the date and amount of any deposits you made that don not appear on the bank statement. These are called deposits in transit. Total the deposit amounts. Add the total deposits in transit to the bank statement balance. Place this amount on the Subtotal line.

5. Compare your checkbook register with the bank statement. Verify that the amount of each check you wrote and each ATM or debt card withdrawal you made is shown correctly on the bank statement. Place a checkmark in the check mark column of the register by each check or other withdrawal that is shown on the bank statement.

Preparing a Bank Reconciliation

6. On the reconciliation form, list the check number or code, date, and amount of any checks and other withdrawals you made that do not appear on the bank statement. Checks written that have not yet been processed by the bank are called outstanding checks. Total the outstanding amounts. Subtract the total from the Subtotal calculated in step 4. The amount left is called the adjusted bank balance.

7. Enter the balance date and amount shown in your checkbook register on the reconciliation form.

Preparing a Bank Reconciliation

8. On the reconciliation from, list any fees or charges shown on the bank statement that are not recorded in the register. Total the amounts. Subtract the total from the checkbook register balance on the form to obtain the Subtotal. Record the fees and charges in your checkbook register and update the balance.

9. On the reconciliation form, list any interest or other credits (additions) shown on the bank statement that do not appear in the register. Total the interest and other credits. Add this total to the amount calculated in Step 8. Record the interest or other credits in the register and update the balance.

Preparing a Bank Reconciliation

10. Compare the adjusted bank balance and the adjusted checkbook register balance. The two amounts should be he same. If they are not, complete the steps again and check your calculations in the checkbook register. Also, check for transportation errors, which occur when numbers are recorded out of order. For example, you may write a check for $62.26 but record the check as $26.62 in your check book register. If you find that kind of mistake has been made, add or subtract the amount of the mistake to correct the checkbook register balance.

Cancelled Checks

• Checks that a bank has processed are call cancelled checks or cleared checks.

• In the past, banks returned cleared checks to the account holder.

• Today, banks exchange information electronically. A paper check is transformed into a digital image of the check called a truncated check.

Preparing a Bank Reconciliation

11. In the checkbook register, enter a note in the Description column to indicate that the balance is in agreement with the bank balance on this date; for example, “Register and statement are in balance on August 3, 2015.”

12. Store the bank statement and the completed reconciliation form for future reference. Organize the documents by date so you can find a particular statement easily.

Fees and Interest

• Monthly service fee – charged once a month no matter what the activity. Usually $5 to $20 a month.

• Transaction fee such as 20 cents a check.

• Insufficient fund fee when your balance falls below zero.

• Some accounts require a minimum balance and then there is no fee unless you fall below the minimum balance.

• Some checking accounts pay interest, but have to have a higher minimum balance.

Assignment

• Pg. 160 do problems 1-9

• Pg. 161 do problem 26

• Do everfi module on Checking Accounts