BANKING
Chapter 4
Lecture Notes
McGraw-Hill/Irwin
Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
LEARNING UNIT OBJECTIVES
LU 4-1: The Checking Account
1.
Define and state the purpose of signature
cards, checks, deposit slips, check stubs,
check registers, and endor sements.
2.
Correctly prepare deposit slips and write checks.
LU 4-2: Bank Statement and Reconciliation Process; Latest Trends in
Mobile Banking
1.
Explain the trends in the banking industr y.
2.
Define and state the purpose of the bank statement.
3.
Complete a check register and a bank reconciliation.
4.
Explain the trends in online banking pro and con.
4-2
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.
3
4-3
CHECKS/DRAFTS
Drawer - One who writes
the check
Drawee – Bank
ordered to pay
Payee - To whom check
is payable
4-4
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.
4-5
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.
4-6
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.
4-7
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.
4-8
THE STRUCTURE OF A CHECK
FIGURE 4.2
4-9
CHECK STUB
 Once the check is written, the writer must keep a record of
the check.
10
4-10
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
2009
Description of Transaction
Payment/Debit x Fee Deposit/Credit Balance
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
4-11
PRACTICE
4-12
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
4-13
EXAMPLES
4-1 Fill out the check register that follows with this information
2013
July 7
15
19
20
24
29
Check No. 482
Check No. 483
Deposit
Check No. 484
Check No. 485
Deposit
AOL
Staples
$143.50
66.10
800.00
Sprint
451.88
Krispy Kreme 319.24
400.30
4-14
4-1
4-15
SOLUTION FOR 4-1
4-16
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.
4-17
SOLUTION FOR 4-2
4-18
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
4-19
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
Gracie’s Natural
Superstore 88190662
Full
Pay to the order of
Ipswich Bank
Gracie’s Natural
Superstore 88190662
Can be further endorsed
Only person or company
named in the
endorsement can
transfer the check to
someone
Restricted
Pay to the order of
Ipswich Bank
For deposit only
Gracie’s Natural
Superstore 88190662
Limits any further
negotiation of the
check
4-20
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 —
4-21
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.
Checkbook
•
Bank Statement
Next slide tells you what to look for when comparing a checkbook
balance with a bank balance.
4-22
RECONCILIATION
Checkbook Balance
Bank Balance
+EFT (electronic funds transfer)
+Interest earned
+Notes collected
+Direct deposit
- ATM withdrawals
- Automatic withdrawals
-NSF check
-Online fees
- Automatic payments
-Overdraf ts
-Ser vice charges
-Stop payments
+/-Book error s
+Deposit in transit
-Outstanding checks
+/-Bank errors
Checkbook
Bank Statement
4-23
FIVE STEPS IN RECONCILING ACCOUNT
4-24
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.
4-25
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
4-26
EXAMPLES
4-3Using the check register in Problem 4–1 and the following bank statement,
prepare a bank reconciliation for Lee.com.
Solution
4-27
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:
4-28
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:
4-29
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:
4-30
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.
4-31
TRENDS IN ONLINE BANKING
PROS AND CONS
PROS
 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
4-32