3. CHAPTER TWENTY FOUR BANKING PROCEDURES

4. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-3 1. Open and use a checking account. 2. Endorse checks. 3. Prepare deposit slips. 4. Complete check stubs and write checks. 5. Reconcile the bank statement. BANKING PROCEDURES Objectives:

5. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-4 Opening a Checking Account The owner of a new business should open a checking account. Banks require signature cards to be completed and will accept a deposit to open the account.

6. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-5 Making Bank Deposits Bank deposits should be made often to protect cash receipts. Deposits must be prepared properly.

7. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-6 Making Bank Deposits (continued) Coins and currency should be counted and wrapped. Checks and money orders must be endorsed.

8. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-7 Writing Checks A check gives authorization for the bank to pay a stated amount of money from the business’s account. The information about the checks is recorded in the check register or on the check stub.

9. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-8 Writing Checks (continued) Checks should be numbered consecutively. The check register or check stub should be completed before the check is written.

10. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-9 Writing Checks (continued) Checks should be prepared in ink, typewritten, or printed by a computer. There must be no alterations or erasures on a check. If an error is made, the word VOID is written in large letters across the face of the check and on the stub.

11. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-10 Writing Checks (continued) Checks must be carefully prepared to prevent later changes in the amount or name of the payee. Checks must have an authorized signature.

12. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-11 Reconciling the Business’s Records With the Bank Statement Most banks send a bank statement every month that includes the canceled checks the bank has paid. The bank may not know about deposits in transit that you have recorded.

13. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-12 Reconciling the Business’s Records With the Bank Statement (continued) To the balance on the bank statement you must add deposits in transit and subtract outstanding checks. To the balance in the checkbook you must add corrections (if any) and subtract any bank charges.

14. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-13 Reconciling the Business’s Records With the Bank Statement (continued) The adjusted bank balance must agree with the adjusted checkbook balance. If there are errors, correcting entries must be journalized to reflect the corrections.

15. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-14 Other Bank Services Banks also provide safety deposit boxes, financial planning, processing of sales with bank cards, and special services that will help you conduct your business more efficiently.

16. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-15 Accounting Terminology Bank reconciliation Bank statement Blank endorsement Canceled checks Certified check Check Check register Check Stub Credit memorandum Debit memorandum Deposit slip Deposits in transit Drawer Endorsement Full endorsement Night depository Outstanding checks Payee Restrictive endorsement Service charge Signature card Stop payment order

17. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-16 Chapter Summary A well-run business deposits all its cash receipts in a bank and makes all cash payments by check. Bank deposits should be made often to protect cash receipts. A deposit slip must accompany the coins, currency, and checks that are deposited.

18. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-17 Chapter Summary (continued) Every check must be endorsed before it is deposited. An endorsement legally transfers the right to collect payment on a check.

19. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-18 Chapter Summary (continued) A business must have a record of its checks, deposits, and account balance. This information is usually shown on check stubs or in a check register. The register or stub should be completed before the check is written.

20. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-19 Chapter Summary (continued) All checks should be prepared with care and accuracy. Most banks send a monthly bank statement along with canceled checks.

21. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-20 Chapter Summary (continued) All accounts should be reconciled regularly to detect any errors. After the reconciliation procedure is completed, any unrecorded bank charges or credit memorandums must be entered in the accounting records and checkbook.

22. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-21 Chapter Summary (continued) The cancelled checks should be stored in a check file. Banks provide a variety of services that are useful to businesses.

23. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-22 Investigating on the Internet As a research assignment, access the Wachovia Bank site and report those sources of information that might concern statements.

24. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-23 1. Deposits should be made frequently to protect cash receipts. 2. Businesses should always have a checking account for doing business. 3. Deposits include coins, currency, non- endorsed checks, and endorsed checks. Topic Quiz Answer the following true/false questions: TRUE FALSE TRUE

25. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 24-24 (Return to Topic Quiz) 3. Deposits include coins, currency, non- endorsed checks, and endorsed checks. FALSE All checks should be endorsed.