Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 12.1 Chapter 12 The banking system in the UK

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 12.2 Learning objectives After you have studied this chapter, you should be able to:  Describe the changes that have occurred in the UK since the late 1960s in the ways payments can be made  Describe the many alternatives to cheques and cash that currently exist  Describe the credit card payment system

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 12.3 Learning objectives (Continued)  Describe the cheque clearing system  Write a cheque  Explain the effect of various kinds of crossings on cheques  Explain how to endorse a cheque over to someone else  Complete bank pay-in slips  Explain the timing differences between entries in a cash book and those on a bank statement

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 12.4 How has banking changed?  Withdrawing money – previously this was done in a branch using a cheque. Now a debit card can be used at virtually any cash machine.  Cash machines (ATMs) – previously supplied cash in exchange for a token, and then used the PIN system to offer £10 at a time, but now offers the option to complete tasks via the screen.  Direct debits – offer a non-cash payment option.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 12.5 Forms of payment  Cheque  Debit card  Credit card  Online banking  Automated payment

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 12.6 Cheques  The use of cheques has dropped significantly in recent years, mainly because other methods are more popular.  The UK Domestic Cheque Guarantee Card Scheme ended in June 2011 meaning that anyone in receipt of a cheque bears their own risk.  Cheques are not expected to be a payment option by  Requires the clearing service which takes three days.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 12.7 The features of a cheque

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 12.8 The features of a cheque (Continued)  Cheque number – that identifies the cheque, in this case  Sort code – that identifies the branch, in this case  Account number – that identifies the account with the bank, in this case  The counterfoil – on the left, filled in and retained in the cheque book for reference.  The signature of the drawer – the person who is paying the money out.  The name of the payee – to whom the cheque is paid.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 12.9 Cheque crossings A cheque can be further safeguarded using a specific crossing as shown. This ensures that the cheque can only be paid into the name of the payee given.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide Cheque endorsements  If a cheque has no crossing, it can be endorsed – transferred over to someone else and paid into their bank.  To endorse a cheque, the current owner would write the words ‘Pay (name of the recipient) or order’ on the reverse of the cheque and sign beneath this.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide Clearing a cheque The transmission and settlement of a cheque requires the clearing service, which can take three days: Day 1 – Cheques are processed by the bank into which they were paid and information is sent electronically to the clearing centre. Day 2 – The cheque is delivered to an Exchange Centre. Day 3 – Bank staff review the cheque and decide whether to authorise payment.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide Debit cards  Introduced in  Generally have an ATM function, cheque guarantee facility and act as a debit card.  Can allow the holder to get cash back at a checkout.  Accounts for 70% of all inter-bank remote banking payments.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide Credit cards  Introduced in  Can allow up to 30 days of interest-free credit.  Use of debit cards now vastly exceeds the use of credit cards.  Like cheques, credit card use is likely to decline but will remain an option for payment.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide Online banking  A twenty-first-century phenomenon.  Offers a 24/7 facility for: Balances to be checked. Standing orders or direct debits to be created. Funds to be transferred.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide Automated payments  Introduced in  Originally called BACS.  Now the most common type of automated payments are either: Direct debits – where the amount is specified by the payee and can change. Standing orders – where the amount is specified by the payer and is fixed.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide Types of account  Current account: Used for regular payments in and out Comes with a cheque book, pay-in book and ATM/debit/cheque guarantee card Earns little interest.  Deposit account: Generally earn more interest Not intended for accessing money on a regular basis.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide Pay-in slips  To pay money into an account, a pay-in slip is used.  When the payment is into an account held in a different bank, the form is called a bank giro credit.  Full details of the cash and/or cheques being paid in are given and the slip is handed in at the bank counter.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide Pay-in slips (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide Learning outcomes You should now have learnt: 1. That the banking sector has been revolutionised by the developments in computers and information technology over the last 40 years 2. That where previously payments could usually only be made by cash or cheque, there is now a wide range of alternatives, ranging from plastic cards to direct debits and direct transfers into bank accounts

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide Learning outcomes (Continued) 3. That the use of cheques is falling but that they are still a very common form of payment in business 4. How the credit card payment system operates 5. That cheque clearing is the way in which a cheque goes through the banking system and is credited to its rightful owner and charged against the drawer’s bank account

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide Learning outcomes (Continued) 6. That it usually takes three days for a cheque payment to reach the account of the payee 7. That a debit card payment will reach the account of the payee immediately 8. That cash is still the most common form of medium for payments 9. That holders of a current account will normally be issued with a cheque book and a multiple use plastic card incorporating a cheque guarantee card, debit card and ATM card

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide Learning outcomes (Continued) 10. How to write a cheque 11. That crossings on cheques indicate that they must be banked before cash can be collected for them 12. That special crossings on cheques act as instructions to the banker, and are usually used to ensure that the cheque cannot be used by anyone other than its rightful owner

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide Learning outcomes (Continued) 13. That cheque endorsements enable the rightful owner of the cheque to give it to someone else 13. How to complete a bank pay-in slip 14. How to complete a bank giro credit