Chapter 4

BankingBanking

McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved

• Define and state the purpose of signature cards, checks, deposit slips, check stubs, check registers, and endorsements

• Correctly prepare deposit slips, write checks

Banking#4#4Learning Unit ObjectivesThe Checking Account; Credit Card Transactions

LU4.1LU4.1

4-2

• Define and state the purpose of the bank statement

• Complete a check register and a bank reconciliation

• Explain the trends in online banking

Banking#4#4Learning Unit ObjectivesBank Statement and Reconciliation Process; Trends in Banking

LU4.2LU4.2

4-3

4-4

Checks/Drafts

Written order instructing a bank, credit union, or savings and loan institution to pay a designated amount of your money on deposit w/the bank to a person or organization

Payee - To whom check is payable

Drawee- Bank ordered to pay

Drawer - One who writes the check

4-5

Deposit Slip - Fig 4.1

Gracie’s Natural Superstore80 Garfield StreetBartlet, NH 01835

Date ________________ 20 __________DEPOSITS MAY NOT BE AVAILABLE FOR IMMEDIATE WITHDRAWAL

IpswichBankipswichbank.com

211370587 88190662

Checks and other items are received for deposit subject to the provisions of the uniform commercial code or any applicable collection agreement

CASHList Checks Singly 1800.00

200.00

Total 2000.00

USE OTHER SIDE FOR ADDITIONAL LISTING. < ENTER TOTAL HERE.

March 4 0953-7058

4-6

The structure of a check - Fig 4.2

Gracie’s Natural Superstore80 Garfield Street 53-7058/2113 No. 633Bartlet, NH 01835 88190662

Pay ____________________20 _____To The Orderof ____________________________________________________$ ___________________

_________________________________________________________________ DOLLARS

IpswichBankipswichbank.com

Memo____________________________ _____________________

:211370587 88190662 633 0000006000

Staples Corporation

March 8 09

xx Six Thousand and 100

xx6,000 100

Molly KateOffice Equipment

4-7

Types of Endorsements

Gracie’s Natural Superstore88190662

Pay to the order ofIpswich Bank

For deposit onlyGracie’s Natural Superstore88190662

Blank Full Restricted

Pay to the order ofIpswich BankGracie’s Natural Superstore 88190662

Can be further endorsed

Only person or company named in

the endorsement can transfer the

check to someone

Limits any further negotiation of the

check

4-8

Bank Statement

A statement of different types of activity that have taken place during the month

•Debit - decreases the account -

• Credit - increases the account +

4-9

Ipswich Bank Account Statement1 Pleasant St.Bartlett, NH 01835

Gracies Natural Superstore Checking Acct. 881900662

80 Garfield St.Barltett, NH 01835 Summary as of 3/31/07

Beginning Total Total Service EndingBalance Deposits WithdrawalsCharge Balance$13,112.24 $8,705.28 $9,926.00 $28.50 $11,863.02

Deposits Date AmountDeposit 3/5 2,000.00EFT Leasing 3/18 1,808.06Interest 3/31 56.02

Charges Date AmountService 3/31 28.50EFT: Health 3/21 722.00

Checks Daily BalanceNumber Date Amount Date Balance633 3/7 6,000.00 2/28 13,112.24634 3/13 300.00 3/5 15,232.24

Monthly Summary: $8,721.44Average Balance: $12,170.38

Checking Account Transactions

Bank Statement

4-10

Check Register

Used to track written checks

RECORD ALL CHARGES OR CREDIT THAT AFFECT YOUR ACCOUNT

Number Date Description of Transaction Payment/Debit x Fee Deposit/Credit Balance

633 12/15 Staples Co. 75 35 -75 35

2009

12/18 Deposit 412 78 +412 78

634 12/22 Health Food, Inc. 79 33 649 78

391 68

316.33

729 11

4-11

Bank Reconciliation

• Reconciles the difference between the bank statement and the checkbook

Differences in timing Transactions not entered in checkbook

CheckbookCheckbook Bank StatementBank Statement

4-12

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 StatementBank StatementCheckbook Checkbook

4-13

Steps in Reconciling Account

1) Identify outstanding checks

2) Identify deposits in transit

3) Analyze bank statement for transactions not recorded in check register

4) Check for recording errors in checks, deposits, addition or subtraction

5) Compare the adjusted balances, if different repeat steps 1-4

4-14

Bank ReconciliationGRACIE’S NATURAL SUPERSTORE

Bank Reconciliation as of March 31, 2009Checkbook Balance Bank BalanceGracie’s checkbook balance $6,588.42 Bank Balance $11,863.02Add: Add:EFT leasing: Bakery dept. $1,808.06 Deposit in transit 3,383.26EFT leasing: Meat dept. 4,228.00 $15,246.28Interest 56.02Error: Overstated ck # 634 720.00 6,6812.08

$13,400.50Deduct: Deduct:Service charge $28.50 Outstanding checks:NSF 104.00 No. 638 $572.00EFT Health Insurance pymt. 722.00 854.50 No. 639 638.94

No. 640 166.00

No. 641 406.28 No. 642 917.06 2,700.28

Reconciled balance $12,546.00 Reconciled balance $12,546.00

4-15

Trends in Online Banking

• Increase Use of Internet • New Bank Legislation• Role of Middlemen in the Internet

4-16

Problem 4-9:

Solution:

Sue’s Checkbook Balance $604.30 Bank Balance $ 315.65 Add: Add: Interest 5.15 Deposit in Transit 1,215.15 $609.45 $1,530.80 Deduct: Deduct: Service Charge $ 6.50 Outstanding Checks: Overdraft 25.00 31.50 No. 250 $603.15 No. 253 218.90 No. 254 130.80 952.85

Reconciled Balance: $577.95 Reconciled Balance: $ 577.95

4-17

Challenge Problem

Solution:

Checkbook Balance: $ 985. 20 Bank Balance: $1,430.33 Add: Add: Interest $ 2.33 Deposit in Transit 931.08 IRS Refund 1,030.05 1,032.38 $2,361.41 $2,017.58 Deduct: Deduct: Gas Company $ 135.20 Outstanding Checks: ATM Fee 6.50 No. 235 $138.20 Service Fee 8.00 No. 237 184.13 Debit (5x$.45) 2.25 No. 238 118.12 Printing 3.50 155.45 No. 239 38.83 499.28

Reconciled Balance $1,862.13 Reconciled Balance $1,862.13