LESSON 5-1LESSON 5-1

Checking Accounts

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Checking Account • A bank account from which payments can be

ordered by a depositor

Endorsement• A signature or stamp on the back of a check

transferring ownership

New Vocabulary

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Blank Endorsement

• An endorsement consisting only of the endorser’s signature

Special Endorsement• An endorsement indicating a new owner of

a check

Restrictive Endorsement • An endorsement restricting further transfer

of a check’s ownership

Three Types of Endorsements

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Examples

page 127Blank Endorsement

Special Endorsement

Restrictive Endorsement

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Completed Check Stub and Check

• A check stub is a record of each check written for a cash payment transaction. Concept: Objective Evidence

• Always prepare the stub before you write the check

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5. Write the amount of the check.

2. Write the date of the check.

3. Write to whom the check is to be paid.

4. Record the purpose of the check.

1. Write the amount of the check.

6. Calculate the new checking account balance.

COMPLETED CHECK STUB

page 12812

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56

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COMPLETED CHECK

7. Write the date.

page 128

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10. Write the amount in words.8. Write to whom the check

is to be paid.

9. Write the amount in figures.

11. Write the purpose of the check.

12. Sign the check.

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Recording a Voided Check

• If an error is made, void should be written on the check.

• Do not destroy the check.• Make a journal entry so the Doc. Number

column records all checks.• Page 129

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RECORDING A VOIDED CHECK

page 129

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DEPOSITING CASH

page 126

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DEPOSIT RECORDED ON A CHECK STUB

page 119

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Audit Your Understanding

List the three types of endorsements.• Blank• Restrictive• Special

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5-1 Work Together

• Workbook Page / Handout

LESSON 5-2LESSON 5-2

Bank Reconciliation

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5-2 Bank Statement• A report of deposits, withdrawals,

and bank balances sent to a depositor by a bank.

• When a statement is received, the depositor must check it for accuracy.

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BANK STATEMENTpage 124

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Bank Statement (cont.)

• A bank’s records and a depositors records may differ and both may still be correct.

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There are four reasons why this may happen.

1. A service charge may not have been recorded by the depositor.

2. Outstanding deposits recorded by the depositor may not be on the bank statement.

3. Outstanding checks may be recorded by the depositor, but not by the bank yet.

4. A depositor may have made math or recording errors.

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When a statement is received...

• Compare canceled checks with check stubs and place a check mark on each stub for canceled checks.

• Follow the same procedure for deposits.• Page 124

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5. Bank Statement Balance

BANK STATEMENT RECONCILIATION

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9. Adjusted Bank Balance

page 125

2. Check Stub Balance

10. Compare Adjusted Balances

1. Date

3. Service Charge4.Adjusted Check Stub Balance

6.Outstanding Deposits7. Subtotal8.Outstanding Checks

10

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After you complete the reconciliation...

• Remember, the bank has already taken the amount of the service charge out of your account.

• Write the service charge on a check stub and deduct it from your account balance.

• Pg. 126

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After you complete the reconciliation...

The service charge must also be recorded in the journal.

Pg. 127No check is written for the service

charge.Use a memo as your source

document.Miscellaneous expense is debitedCash is credited

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1. Write Service Charge $8.00 on the check stub under the heading “Other.”

RECORDING A BANK SERVICE CHARGE ON A CHECK STUB

page 126

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2. Write the amount of the service charge in the amount column.

3. Calculate and record the new subtotal on the Subtotal line.

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JOURNALIZING A BANK SERVICE CHARGEpage 127

August 31. Received bank statement showing August bank service charge, $8.00. Memorandum No. 3.

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Audit Your Understanding

List four reasons why a depositor’s records and a bank’s records may differ.

1. A service charge may not have been recorded by the depositor.

2. Outstanding deposits recorded by the depositor may not be on the bank statement.

3. Outstanding checks may be recorded by the depositor, but not by the bank yet.

4. The depositor may have made a math or recording error.

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Audit Your Understanding

If a check mark is placed on the check stub of each canceled check, what does a check stub with no check mark indicate?

• It is an outstanding check.

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5-2 Work Together

• Workbook Page 95

LESSON 5-3LESSON 5-3Dishonored Checks

and Electronic Banking

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Dishonored Check

A check that a bank refuses to pay.1. Check appears to be altered.

2. Signature does not match the signature card at the bank.

3. Amounts written in words and figures do not agree.

4. Postdated check

5. Person who wrote check ordered stop payment.

6. Insufficient funds

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RECORDING A DISHONORED CHECK ON A CHECK STUB

1. Write Dishonored check $105.00 on the line under the heading “Other.”

page 129

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2. Write the total of the dishonored check in the amount column.

3. Calculate and record the new subtotal on the Subtotal line.

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JOURNALIZING A DISHONORED CHECKpage 130

November 29. Received notice from the bank of a dishonored check from Campus Internet Café, $70.00, plus $35.00 fee; total, $105.00. Memorandum No. 55.

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Electronic Funds Transfer

• A computerized cash payments system that uses electronic impulses to transfer funds

• AKA: EFT• The business does not have to write a

check.• Source document for journal entry is a

memo.

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JOURNALIZING AN ELECTRONIC FUNDS TRANSFER

page 131

September 2. Paid cash on account to Kelson Enterprises, $350.00, using EFT. Memorandum No. 10.

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Debit Card• A bank card that, when making

purchases, automatically deducts the amount of the purchase from the checking account of the cardholder.

• Different from a credit card. • Purchase amount is automatically

withdrawn from the checking account.

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Debit Card Purchases• When journalizing transactions

involving debit cards, the source document is a memorandum.

• Cash is credited.

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JOURNALIZING A DEBIT CARD TRANSACTION

page 132

September 5. Purchased supplies, $24.00, using debit card. Memorandum No. 12.

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Audit Your Understanding

List 6 Reasons why a bank may dishonor a check.

1. Altered checks

2. Signature does not match

3. Amounts do not match

4. Check is postdated

5. Stop payment issued

6. Insufficient funds

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Audit Your Understanding

What account is credited when EFT is

used to pay cash on an account? • Cash

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Audit Your Understanding

What account is credited when a debit card is used to purchase

supplies? •Cash

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6-3 Work Together• Workbook page 97

LESSON 5-4LESSON 5-4

Petty Cash

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5-4 Petty Cash• An amount of cash kept on hand and

used for making small payments.–The actual dollar amount in the

account may differ from business to business.

• Petty Cash = Asset Account–Normal Debit Balance

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ESTABLISHING A PETTY CASH FUNDpage 134

August 17. Paid cash to establish a petty cash fund, $100.00. Check No. 8.

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Petty Cash Slip• Petty cash slip number• Date• To whom paid• Reason for payment• Amount paid• Account involved• Signature

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REPLENISHING PETTY CASHpage 136

August 31. Paid cash to replenish the petty cash fund, $30.00: miscellaneous expense, $20.00; advertising, $10.00. Check No. 12.

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Audit Your Understanding:

Why do businesses use petty cash funds?• For making small cash payments

Why is Cash and not Petty Cash credited when a petty cash fund is replenished?

• The check issued to replenish petty cash is a credit to Cash and does not affect Petty Cash.

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5-4 Work Together

• Workbook Page 99