Banking Procedures Chapter 11, Section 1

Internal Controls steps business itself takes to protect cash and other assets ► Limit people who have access ► Separate activities AR & AP  Who handles cash in and writes checks ► Bonding (insuring) employees ► Cash register and safe ► Daily cash deposits ► Use check to make all payments

External Controls measures and procedures outside the business to protect cash and other assets ► Putting money in the bank

Opening a Checking Account ► Checking Account  deposit cash in the bank and write checks against the balance in the account ► Check  written order from the depositor (account owner) to pay stated amount to stated person named on the check ► Depositor  person or business that has cash on deposit at the bank ► Signature Card  contains name(s) and signature(s) of person(s) authorized to write checks Figure 11-1

Opening a Checking Account ► Checkbook:  detachable checks with check stubs  Figure 11-2 ► ABA Number (American Bankers Association Number)  Fractional number identifying the bank  Printed upper right corner  Figure 11-3  Figure 11-3 City or State/Specific Bank Federal Reserve District (where bank is located)  Bottom of Check: ABA Number, Account Number, Check Number (for electronic sorting)

Making Deposits to Checking Account ► Deposit Slip  bank form listing cash and checks being deposited  Figure 11-4 ► Completing a Deposit Slip 1.Date 2.Cash – currency and coins 3.Checks – list separately by ABA # (above line only) 4.Add cash and check amounts and write total amount on line

Endorsing Checks ► Endorsement  authorized signature written or stamped on back of check ► Restrictive Endorsement  limits how check may be handled “For Deposit Only…”  Figure 11-5  put on right away so no one else can cash

Recording Deposits in Checkbook ► Figure Date under “add deposits” on next stub for unused check 2.Enter total amount 3.Add amount to “Balance Brought Forward” Enter on total line Total is new checkbook balance

Writing Checks ► Done in ink or typed ► Complete check stub before writing check Completing a Check Stub Figure Amount of check, date, name of Payee: to whom check is written 2.Enter balance on total line if not done 3.Enter check amount “Less this Check” 4.Subtract total – check amount Enter in “Balance Carried Forward” 5.Enter Balance Carried Forward on the next stub under “Balance Brought Forward”

Filling Out the Check ► Figure Date 2.Pay to the Order of: 3.Amount in Numbers 4.Amount in words, change as fraction 5.Sign Check ► Drawer: person who signs check ► Drawee: bank on which check is written

Voiding a Check ► If mistake is made do not use ► Write “VOID” large across front of check, know as Voiding a Check ► Keep on file to prove

Banking Procedures Chapter 11, Section 2 Reconciling

Proving Cash ► Compare Cash in Bank account with checkbook ► If they do not agree  Checkbook error usually from mistake in addition or subtraction  Failure to record deposit or check  Mistake in copying balance brought forward amount ► If an error is found make correction on next unused check stub ► p. 266 Figure 11-9

Bank Statement ► itemized record of all transactions in depositors account ► Figure Beginning Balance 2.List all deposits 3.List all checks paid by bank 4.List any deductions (debit, bank fees) 5.Ending Balance ► Canceled Checks: returned checks paid by bank and deducted from depositors account stamped “Paid” and dated (payment date)

Reconciling the Bank Statement ► process of determining any difference between bank statement and checkbook ► Ending balance on the bank statement hardly ever matches the ending balance in your checkbook because of:  Outstanding Checks  Outstanding Deposits  Bank Fees

Outstanding Checks and Deposits ► Outstanding Checks: checks written but not cleared through the bank ► Outstanding Deposits: deposits made and recorded in the checkbook but not on the bank statement

Bank Service Charges ► a fee charged for maintaining bank records and processing bank statement items ► Subtracted from depositors account ► Before you reconcile – checkbook balance adjusted for bank service charge ► Figure “Less: Service Charge” (“- $00.00) Write Total on total line

Reconciling Bank Statement ► Figure Arrange canceled checks in numerical order ► Compare check, bank statement and stubs – when you have matched all three put check mark on all three ► List on form any stubs without a check mark (# and amount) – outstanding checks 2. Enter ending balance on the bank statement

Reconciling Bank Statement 3.Compare deposits on bank statement and checkbook ► Match put check mark on each ► List any with no check mark on the form – outstanding deposits ► Add outstanding deposits to the bank statement balance – enter on form 4.Subtract total outstanding checks from total in step three 5.Compare adjusted bank balance, when it matches the ending balance on the bank statement – reconciled

Recording Bank Service Charges ► Recorded in account records ► Do not have to write check – bank statement is the source document ► P. 269 journal entry

Special Banking Procedures ► Stop-Payment Order: demand by the drawer that the bank not honor a certain check  Must do before check is cashed  Request made in writing  Figure ► Write “Stopped Payment” on check stub ► Add amount of stopped payment to next unused check stub ► Fee – appears on the bank statement ► A journal entry like bank service fees is done  source document is the bank statement

Recording NSF Checks ► NSF Check: returned to depositor by the bank because there are not sufficient funds in the drawer’s check account  Someone writes you check  Not enough money in their account  Bank deducts from your account and returns to you  You notify customers  Customer deposits money or finds another way to pay  P. 271 journal entry – shows $ owed to you

Electronic Funds Transfer System (EFTS) ► Allows banks to transfer funds among accounts quickly and accurately without exchange of checks ► Direct deposit