Chapter Six BANKING AND BUDGETING Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

LEARNING UNIT OBJECTIVES 6-2 LU 6-1: The Checking Account 1.Define and state the purpose of signature cards, checks, deposit slips, check stubs, check registers, and endorsements. 2.Correctly prepare deposit slips and write checks. LU 6-2: Bank Statement and Reconciliation Process; Latest Trends in Mobile Banking 1.Explain trends in the banking industry. 2.Define and state the purpose of the bank statement. 3.Complete a check register and a bank reconciliation. 4.Explain the trends in mobile banking. LU 6-3: The Budgeting Process 1.Understand the value of a budget. 2.Create a budget.

CHECKS/DRAFTS 6-3 Check/Drafts – A written order instructing a bank, credit union, or savings and loan institution to pay a designated amount of your money on deposit with the bank to a person or organization. Drawee – Bank ordered to pay Payee - To whom check is payable Drawer - One who writes the check

DEPOSIT SLIP FIGURE

THE STRUCTURE OF A CHECK FIGURE

TYPES OF COMMON ENDORSEMENTS FIGURE Gracie’s Natural Superstore Pay to the order of Ipswich Bank For deposit only Gracie’s Natural Superstore Blank Full Restricted Pay to the order of Ipswich Bank Gracie’s Natural Superstore 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

USING THE CHECKING ACCOUNT The check stub should be completed before the check is written. 6-7

TRENDS IN BANKING INDUSTRY 6-8  More businesses and people are using smartphone apps from lenders to do their banking transactions.  Electronic banking is convenient and usually charges significantly lower fees, but does carry some risk. Check textbook website for the latest updates on banking bailouts and government intervention:

BANK STATEMENT 6-9 Bank Statement – A statement listing different types of activity that have taken place during the month.  Debit: decreases the account —  Credit: increases the account +

BANK STATEMENT FIGURE

BANK RECONCILIATION 6-11  Reconciles the difference between the bank statement and the checkbook. Differences in timing Transactions not entered in checkbook Checkbook Bank Statement

RECONCILING CHECKBOOK WITH BANK STATEMENT 6-12 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 Statement Checkbook

RECONCILING A BANK STATEMENT 6-13 Step 1. Identify outstanding checks. Step 2. Identify deposits in transit. Step 3. Analyze bank statement for transactions not recorded in check register. Step 4. Check for recording errors in checks, deposits, addition, or subtraction. Step 5. Compare the adjusted balances; if different, repeat Steps Steps

CHECK REGISTER FIGURE Used to track written checks

COMPLETING THE BANK RECONCILIATION-- FIGURE

BANK RECONCILIATION FIGURE GRACIE’S NATURAL SUPERSTORE Bank Reconciliation as of March 31, 2013 Checkbook BalanceBank Balance Gracie’s checkbook balance $6,588.42Bank Balance$11,863.02Add: EFT leasing: Bakery dept.$1,808.06Deposit in transit 3, EFT leasing: Meat dept. 4, $15, Interest Error: Overstated ck # , $13,400.50Deduct: Service charge $28.50 Outstanding checks: NSF No. 638$ EFT health insurance payment No No No No , Reconciled balance$12,546.00Reconciled balance $12,546.00

TRENDS IN MOBILE BANKING 6-17 Hottest Trend  Use of bank apps.  Free app to use with an iPad, iPhone, Android, Blackberry, or Kindle.

 A budget is a plan for spending that allows you to manage and guide where money goes to maximize income and wealth.  Because money can be spent only one time, it has an opportunity cost, the cost associated with all other possible uses of that money, including saving and investing.  A line item is an element of a budget separately identified, such as income or utilities. THE BUDGETING PROCESS 6-18

 The totals for income, fixed expenses, nonfixed expenses, total expenses, and net profit (loss) assist with the analysis of the budget whether it is for business or personal use.  Software programs such as Microsoft Excel, Microsoft Money, or Quicken can create budgets. THE BUDGETING PROCESS 6-19

HOW TO CREATE A BUDGET Steps Step 1. Record all sources of revenue (income); total. Step 2. Create a list of monthly fixed cash outflows (expenses) and monthly variable cash outflows (expenses); total. Step 3. Determine whether there is a surplus or deficit by subtracting the total in Step 2 from the total in Step 1. Step 4. If there is a deficit, adjust the variable expenses accordingly. If there is a surplus, determine the best use of that money, such as research and development, investing, or saving.

PERSONAL MONTHLY BUDGET FIGURE