Prepare a deposit slip Record entries in a check register Checking Accounts Prepare a deposit slip Record entries in a check register

Checking Account Many people deposit their cash receipts in a checking account at a bank and make their payments by check. A checking account is safe and easy to use. The canceled checks returned to you by the bank provide you with a record of your payments.

Deposit Slip A deposit slip is used to deposit paychecks and other monies.

Prepare a Deposit Slip List cash deposits of bills and coins on the line labeled CASH. List each check on a separate line. List additional checks on the back. Enter total of additional checks on the Total from Other Side line. Add all the amounts and write the sum on the Subtotal line. To receive cash back from the bank, write the amount wanted on the Less Cash Received line. Subtract the cash received from the subtotal to find the Total Deposit.

Checks When you write a check you direct the bank to make a payment from your checking account. Checks are numbered to make it easy to keep track of checks.

Check Register The check register is part of the checkbook in which deposits and checks are recorded. A new balance, called a running balance, is calculated after each entry. Each deposit is added to the previous balance. Each check is subtracted from the previous balance. The balance is the amount of money in the account.

Sample Check Register

3.2 Electronic Banking Record electronic banking transactions Find account balance when banking electronically

Electronic Banking All banks use computers to process transactions electronically. Electronic banking allows bank customers to use telephones, computers, and other technologies in place of paper transactions such as writing checks and making loan payments.

Electronic Funds Transfer Banks use computers to transfer deposits and checks, or “funds,” from person to person and bank to bank. This process is called Electronic Funds Transfer, or EFT.

Customer Account Numbers and Bank Identification Number Banks print the account numbers of customers and the bank identification number in Magnetic Ink Character Recognition, or MICR, form at the bottom of deposit slips and checks.

Automatic Teller Machine Individuals can also transfer funds electronically when they use an Automatic Teller Machine, or ATM. By using an ATM card issued by your bank, you can withdraw or deposit money, see account balances, or make transfers between your accounts.

Personal Identification Number A Personal Identification Number, or PIN, that is known only to you is entered into the ATM before your transaction is processed. The PIN provides protection against unauthorized use of your ATM card.

Paying Bills with EFT EFTs may also be used to pay your monthly bills, such as utility bills. You can instruct your bank to transfer funds automatically each month from your bank account to the account of your utility provider. No checks are written or mailed.

Direct Deposit Some companies use EFT to pay their employees by transferring funds directly into their employees’ bank accounts without writing any checks to the employees. This is called direct deposit.

Debit Card Many people use a special form of EFT called a debit card. Debit cards allow you to pay for your purchases without using cash.

Using a Debit Card You insert your debit card into a special computer terminal at stores. The computer system subtracts the amount of each purchase automatically from your checking account and adds the same amount to the store’s bank account. You may also use your debit card to withdraw cash from your account. Fees may be charged for using this card.

Recording Electronic Transactions When you use a debit card you get a receipt of the transaction. Save the receipt and immediately record the payment or cash withdrawal in your check register. Record the payment by writing the word “Debit” and adding a short description as well. Record an ATM withdrawal by writing ATM-WD. Record an ATM deposit by writing ATM-DEP.

Calculate account balance needed to make online payments Online Banking Calculate account balance needed to make online payments

Online-Account Access Online banking allows you to do your banking by using your personal computer and the Internet. Each bank designs its own Internet website. What you see on your screen and how you use an online banking system differs among banks.

Examples of Online Banking Services Access accounts 24 hours day, 7 days a week Transfer money between accounts Receive bills electronically Make payments Reorder checks Communicate with bank staff View account history

Sample Online Banking Screen

Making Decisions About Online Accounts When selecting a bank at which to do online banking, the most convenient choice is the bank you now use. You should also evaluate the systems at other banks. Select the system that best meets your needs, is easiest to use, and does so at the least cost.

Using Online Accounts You must identify sources of deposits to the account and decide who will be paid online. You will also have to determine the dates on which bills are due and the usual amount of the bill if it changes from month to month. Online banking simplifies the banking process, yet is very similar to using a regular checking account.

Check Register Reconciliation Reconcile a bank statement Reconcile and correct a check register

Reconcile the Bank Statement Banks keep track of checking account transactions and send a monthly report, called a bank statement, to depositors.

Sample Bank Statement

Bank Statement Typical items on a bank statement Checks paid by the bank Deposits, including interest earned ATM withdrawals Service charges Interest earned is money paid to customers for the use of their money. A service charge is a deduction made by the bank for handling the checking account.

Canceled Check A canceled check is a check that the bank has paid and then marked so it can’t be used again.

Transactions Outstanding Checks that are not returned by the bank are called outstanding checks. This means that the checks have not yet been received or paid by the bank. An outstanding deposit occurs when a deposit is made after the closing date of the bank statement and the deposit is recorded in the check register.

Reconciliation The difference in the checkbook balance and the bank statement balance is the result of the outstanding transactions, interest earned, and the service charge. To bring both balances into agreement and to make sure the bank’s records are correct, both records must be reconciled.

Reconcile the Bank Statement Follow the steps on the reconciliation form on the back of the bank statement. Enter Closing Balance from Statement Add any deposits outstanding Add lines 1 and 2 Enter total of Checks Outstanding Subtract line 4 from line 3. This amount should equal your check register balance.

Sample Bank Reconciliation Form

BUSINESS TIP Outstanding items (checks and deposits) are items that you have recorded in your check register but the bank has not yet received. That means they have not subtracted outstanding checks from the bank balance nor added outstanding deposits to the bank balance. These are two reasons why your balance doesn’t match the bank’s balance.

Reconcile the Check Register Add interest to the balance in the check register. Deduct service charges from the check register.

3.5 Other Reconciliation Problems Reconcile a checking account with outstanding transactions and other errors If OOB by number divisible by 9 then you have transposed numbers or put decimal point in wrong place

Reconcile the Checking Account Sometimes you must reconcile a bank statement and check register balances when deposits, checks, and EFT transactions are not recorded and when other errors are made.

3.6 Savings Accounts Calculate simple interest on savings deposits Calculate compound interest on savings deposits Calculate interest using a compound interest table

Interest One reason people open savings accounts is to keep their money safe. Another reason is that they earn interest on their money. Interest is money paid to an individual or institution for the privilege of using their money. Lesson 3.6

Transaction As with a checking account, you may deposit money into or withdraw money from your savings account. The bank teller may give you a receipt, which is an official record of the transaction. A transaction is something that happens that has to be recorded, such as a deposit or withdrawal.

Simple Interest Simple interest is often figured quarterly, or four times a year, on the balance of the account at the end of each quarter. The interest is paid on the first day of the next quarter, or on January 1, April 1, July 1, and October 1. Sometimes interest is paid twice a year, or in semiannual periods (six months, or one-half year).

Calculate Simple Interest To find the simple interest for any period, first find the interest on the deposit for a full year. Then multiply that amount by the fraction of a year, such as ¼ or ½ for which you want to find interest. Interest = Principal × Rate × Time (I=PRT)

Compounding Interest At the end of each interest period, the interest due is calculated and added to the previous balance in the savings account. The new balance then becomes the principal on which interest is calculated for the next period, if no deposits or withdrawals are made. When you calculate interest and add it to the old principal to make a new principal on which you calculate interest for the next period, you are compounding interest.

Compound Interest Regardless of how interest is earned, the total money in the savings account at the end of the last interest period is called the compound amount, assuming that no deposits or withdrawals have been made. The total interest earned, called compound interest, is the difference between the original principal and the compound amount.

Compound Interest Tables When you calculate compound interest for several interest periods, you can use a compound interest table. The table shows the value of one dollar ($1) after it is compounded for various interest rates and periods.

Sample Compound Interest Table

Using a Compound Interest Table To calculate annual interest, locate the column and row where the interest rate and the number of interest periods meet. The number you find is called the multiplier. Multiply the deposit amount by the multiplier to find the compound amount. Subtract the original principal from the compound amount to find compound interest.

3.7 Money Market and CD Accounts Calculate interest earned on special savings accounts Calculate the penalty for early withdrawals from CD accounts Compare the interest earned on savings accounts Calculate the effective rate of interest

Special Savings Accounts In addition to regular passbook savings accounts, many banks also offer special savings accounts for long-term savers. The interest rates paid on these special savings accounts are higher than the rates paid on regular savings accounts.

CERTIFICATE OF DEPOSIT The certificate of deposit is widely referred to as a CD. The CD is also known as a time deposit or a savings certificate. Some government rules apply to certificate of deposit accounts. (continued on the next slide)

CERTIFICATE OF DEPOSIT (continued) Most banks require depositors to meet certain requirements. Deposit a minimum amount. Leave the money on deposit for a minimum time. The time may be specified in number of days, months, or years. The minimum time is called the term. The date that marks the end of the term is the maturity date. Pay a penalty if money is withdrawn before the end of the term.

MONEY MARKET ACCOUNTS Money market accounts offer higher interest rates than regular accounts. Special rules apply: A minimum balance must be kept in the account for the term specified. More money may be added to the account at any time. The interest rate paid is fixed for short periods of time. A small number of checks may be written against the account.

Penalties on Certificates of Deposit By law, banks must charge depositors a penalty for withdrawing money early from a certificate of deposit. Each bank sets its own penalty for early withdrawals. The penalty usually varies with the term of the certificate.

Compare Savings Accounts Savings accounts are often compared by the interest earned in each account. To compare, calculate the interest that would be earned by each type of account for the same time period.

Effective Rate of Interest The effective rate of interest is the rate you actually earn by keeping your money on deposit for one year. The annual rate and the effective rate you earn can be different. The effective rate is sometimes referred to as the annual percentage yield. Effective Rate of Interest Amount of Interest Earned for One Year Amount of Money on Deposit =