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Business Math

Chapter 4: Banking

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Bank Records

Checking account forms

Bank statements

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4.1. Checking account forms

Make account transactions

Record account transactions

withdrawals, deposits, credits,

fees, ATMs and others.

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4.1.1 Make account transactions Various checking account forms or records are

needed to provide written documentation of the funds that flow into and out of the account.

A transaction is a banking activity that changes the amount of money in a bank account.

Funds going into the account are deposits and are recorded as a credit to the account.

A deposit ticket is needed to support the transaction.

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Make an account deposit.1. Record the date.

2. Enter the amount of currency and/or coins being deposited.

3. List the amount of each check to be deposited including an identifying name or company.

4. Add the currency, coins and checks.

5. If the deposit is going into a personal account and you need “cash back,” indicate the amount and sign. Subtract from the total.

6. Record the net deposit.

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If there is a mistake in the deposit,

The bank will issue a bank memo.

An increase in the balance (or in your favor) is called a credit memo.

A decrease in the balance (or in the bank’s favor) is called a debit memo.

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A credit memo or a debit memo?

Suppose Janice recorded a check for $125.00 when the actual amount of the check is $152.00. Would she receive a credit memo or a debit memo once the bank detected the error?

A credit memo

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Electronic deposits Businesses allowing customers to charge an

amount through a credit card are sometimes called point-of-sale transactions, allowing the business to receive payment electronically from the credit card company.

These include Visa®, MasterCard® and Discover.®

Another type of electronic deposit is direct deposit for payroll. Employees can access their paycheck funds directly from their accounts.

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Taking money out of the account A withdrawal is a transaction which reduces the

amount of funds in the account.

These transactions are called debits.

One bank record for withdrawals is a check or bank draft.

Another type of debit is through the use of a debit card to pay for goods and services.

Withdrawing funds from an ATM will also result in a debit to the account.

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Identify the elements of a check

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Key Terms Payee: the one to whom the money on a check

is paid.

Payor: The bank or institution that pays the amount of the check to the payee.

Maker: The one who is authorizing the payment of the check.

Automatic Drafts: regular withdrawals that the owner of an account authorizes to be made electronically.

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Key Terms

Automatic drafts: Regular monthly bills which are paid electronically and debited from the account.

Signature card: Signature of those authorized to sign the checks for a given account.

Personal identification number (PIN): a private code that is used to authorize a transaction on a debit card or ATM card.

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Make a withdrawal with a check

1. Enter the date of the check.

2. Enter the name of the payee.

3. Enter the amount of the check in numerals; cents can be written as a fraction of a dollar or using a decimal notation.

4. Write the amount of the check in words.

5. Explain the purpose of the check

6. Sign the check.

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4.2.2 Record account transactions

Individuals and business who have banking accounts must record all transactions made to the account.

Check stub: a form that is attached to the check for recording account transactions that show the account balance.

Account register: a separate form for recording all checking account transactions. It also shows the account balance.

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Record account transactionsOn a check stub or account register:

1. Enter the date, the amount of the amount of the check, the person or company to whom the check is made and the purpose of the check.

2. To the balance forward, add any deposits made since the last check.

3. Subtract the amount of the check to obtain the new balance.

4. Carry the new balance forward to the next stub.

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On an electronic money management system:

1. Enter the appropriate details for producing a check.

2. For business accounts or personal accounts that are being used for tracking expenses, record the type of expense or budget account number.The account register is maintained by the system automatically.

Record account transactions

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Endorsements

Simple endorsement: the payee signs or stamps the bank of the check to deposit the amount in an account or to cash the check.

Banks will require payees who are not account holders to present identification before cashing a check from their bank.

Account holders will be required to sign the check and also record the account number on the back of the check.

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Key terms

Enrollment: a signature, stamp or electronic imprint on the back of a check that authorizes payment in cash or directs payment to a third party or account.

Restricted endorsement: a type of endorsement that reassigns the check to a different payee or directs the check to be deposited in a specified account.

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Restricted endorsements

The original payee writes “pay to the order of,” lists the name of the new payee and signs the check.

Another type of restricted endorsement is using the phrase “for deposit only” and listing the account number without actually signing or endorsing the check.

These measures are intended to provide greater security when handling checks.

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Bank statements

Bank reconciliation: The process of making the account register agree with the bank statement.

The bank statement is like a photograph taken a specific moment. Any transactions that had not been posted at that time are considered “outstanding” and are taken into account during this process.

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Key terms

Bank statement: an account record provided by the bank periodically designed to match your records to the bank’s records.

Service charge: a fee the bank charges for maintaining the checking account or for other banking services.

Returned check: deposited check that was returned because the maker’s account did not have sufficient funds.

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Returned check fee: a fee the bank charges the depositor for returned checks

Non-sufficient fund fee: fee charged to the account holder when a check is written for which there are not sufficient funds.

Note: when a check is returned NSF, there are sometimes two penalties: one the bank charges and another by the payee who was unable to collect the money in a timely manner.

Key terms

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Outstanding checks: Checks that have been written, but have not yet been posted to the maker’s account.

Outstanding deposits: deposits that have been made, but have not yet been posted to the maker’s account.

When reconciling your account, be sure to note any bank fees (for returned checks, service charges, etc.) on your account register.

Key terms

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Bank statement