CHAPTER 4 – Banking Instructor: Dr.Gehan Shanmuganathan

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Learning Outcomes Make account transactions. Record account transactions. 4-1

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Make account transactions Various checking account forms or records provide written documentation of the funds that flow into and out of the account. –A transaction is a banking activity that changes the amount of money in a bank account. –Funds going into the account are deposits and are recorded as a credit to the account. –A deposit ticket is needed to support the transaction. Checking Account Transactions Section 4-1

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Make an account deposit Checking Account TransactionsSection 4-1 HOW TO: STEP 2 Enter the amount of currency and/or coins being deposited. STEP 3 List the amount of each check to be deposited including an identifying name or company. MORE Record the date. STEP 1

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Make an account deposit Checking Account TransactionsSection 4-1 HOW TO: STEP 5 If the deposit for a personal account and you need some money in cash, enter that amount on the line “less cash received” and sign on the appropriate line. STEP 6 Subtract the amount of cash received from the total for the net deposit. Add the currency, coins and checks. STEP 4

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved If there is a mistake in the deposit: The bank will issue a bank memo. –An increase in the balance (or in your favor) is called a credit memo. –A decrease in the balance (or in the bank’s favor) is called a debit memo. Make an account deposit Checking Account TransactionsSection 4-1 HOW TO:

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Examples… Suppose Janice’s bank initially cleared a check for $ which Janice actually wrote for $ Would she receive a credit memo or a debit memo once the bank detected its error? A credit memo. Checking Account TransactionsSection 4-1

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Businesses that permit customers to use credit cards to charge merchandise ordinarily receive payment through electronic deposit from the credit card or check processing company. –Sometimes called point-of-sale transactions. Visa ®, MasterCard ® and Discover ® are examples of major credit card companies that electronically transmit funds to business accounts. –Electronic funds transfers (EFTs). Checking Account TransactionsSection 4-1

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Another type of electronic deposit is direct deposit for payroll. –Employees can access their paycheck funds directly from their accounts. Checking Account TransactionsSection 4-1

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved A withdrawal is a transaction which reduces the amount of funds in the account. –These transactions are called debits. One bank record for withdrawals is a check or bank draft. –Another type of debit is through the use of a debit card to pay for goods and services. Withdrawing funds from an ATM will also result in a debit to the account. Checking Account TransactionsSection 4-1

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Key Terms Payee –The one to whom the money on a check is paid. Payor –The bank or institution that pays the amount of the check to the payee. Maker –The one authorizing the payment of the check. Automatic Drafts –Regular withdrawals that the owner of an account authorizes to be made electronically. Key Terms… Checking Account TransactionsSection 4-1

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Key Terms Signature card: –Signature of those authorized to sign the checks for a given account. Personal identification number (PIN) –A private code that is used to authorize a transaction on a debit card or ATM card. Key Terms… Checking Account TransactionsSection 4-1

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Identify the elements of a check Checking Account TransactionsSection 4-1

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Checking Account TransactionsSection 4-1 HOW TO: Make a withdrawal with a check STEP 2 Enter the name of the payee. STEP 3 Enter the amount of the check in numerals. MORE Enter the date of the check. STEP 1

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Checking Account TransactionsSection 4-1 HOW TO: Make a withdrawal with a check STEP 5 Explain the purpose of the check. STEP 6 Sign the check. Write the amount of the check in words. Cents can be written as a fraction of a dollar or decimal notation. STEP 4

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Identify the elements of a check Check stub –A form attached to the check for recording account transactions that show the account balance. Account register –A separate form for recording all checking account transactions. It also shows the account balance. Key Terms… Checking Account TransactionsSection 4-1

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Record account transactions For checks and other debits… –Enter the date, amount of the check/debit, the person or company receiving the check/debit, and the purpose of the check/debit –Subtract the amount of the check or debit from the previous balance to obtain the new balance. –For handwritten checks with stubs, carry the new balance forward to the next stub Individuals and businesses with banking accounts must record all transactions made to the account. Make an entry for every account transaction. Checking Account TransactionsSection 4-1

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved For deposits and other credits… –Enter the date, the amount of the deposit or credit, and a brief explanation of the deposit or credit. –Add the amount of the deposit or credit to the previous balance to obtain the new balance. Individuals and businesses with banking accounts must record all transactions made to the account. Make an entry for every account transaction. Record account transactions Checking Account TransactionsSection 4-1

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved On an electronic money management system… –Enter the appropriate details for producing a check. –Record other debits and all deposits and credits. The account register is maintained by the system automatically. –For business accounts or personal accounts used for tracking expenses, record the type of expense or budget account number Individuals and businesses with banking accounts must record all transactions made to the account. Make an entry for every account transaction. Record account transactions Checking Account TransactionsSection 4-1

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Banks will require payees who are not account holders to present identification before cashing a check from their bank. Account holders will be required to sign the check and also record their account number on the back of the check. Endorsements Checking Account TransactionsSection 4-1

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Endorsement –A signature, stamp or electronic imprint on the back of a check that authorizes payment in cash or directs payment to a third party or account. Simple endorsement –The payee signs or stamps the back of the check to deposit the amount in an account or to cash the check. Restricted endorsement –A type of endorsement that reassigns the check to a different payee, or directs the check to be deposited in a specified account. Key Terms… Checking Account TransactionsSection 4-1

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved In a restricted endorsement, the original payee writes “pay to the order of,” lists the name of the new payee, and signs the check. Another type uses the phrase “for deposit only,” and listing the account number—without actually signing or endorsing the check. Restricted Endorsements Checking Account TransactionsSection 4-1 HOW TO: These measures are intended to provide greater security when handling checks.

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Learning Outcome Reconcile a bank statement with an account register. 4-2

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Financial institutions provide account statements to their checking account customers. –To enable them to reconcile any differences between that statement and the customer’s own account –Any transactions that had not been posted at that time are considered “outstanding” and are taken into account during this process. Bank Statements Section 4-2 Reconcile a bank statement with an account register

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Key Terms… Bank reconciliation –The process of making the account register agree with the bank statement. Bank statement –An account record provided by the bank periodically designed to match your records to the bank’s records. Service charge –A fee the bank charges for maintaining the checking account or for other banking services. Bank StatementsSection 4-2

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Key Terms… Returned check –A deposited check that was returned because the maker’s account did not have sufficient funds. Returned check fee –Bank charges to the depositor for returned checks. Bank StatementsSection 4-2

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Key Terms… Non-sufficient fund fee –A fee charged to the account holder when a check is written for which there are not sufficient funds. Bank StatementsSection 4-2 When a check is returned NSF, there are sometimes two penalties – one the bank charges, and another by the payee who was unable to collect the money. NOTE:

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Key Terms… Outstanding checks –Checks that have been written, but have not yet been posted to the maker’s account. Outstanding deposits –Deposits that have been made, but have not yet been posted to the maker’s account. Bank StatementsSection 4-2 When reconciling your account, be sure to note any bank fees (for returned checks, service charges, etc.) on your account register. NOTE:

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Checking Account TransactionsSection 4-1 HOW TO: Reconcile a bank statement STEP 2 Enter into the register the transactions appearing on the bank statement, but not checked off. Check off all matching transactions appearing on both the bank statement and the account register. STEP 1 Check off these transactions as they are entered and update the register balance accordingly. This is the adjusted register balance. STEP 3 MORE

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Checking Account TransactionsSection 4-1 HOW TO: Reconcile a bank statement Make a list of checks and debits in the register that have not been checked off. Add these amounts to find the total outstanding debits. STEP 4 Use Figure 4-25 as a guide. MORE

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Checking Account TransactionsSection 4-1 HOW TO: Reconcile a bank statement Make a list of all deposits & credits in the register that have not been checked off. Add these amounts to find the total outstanding credits. STEP 5 Use Figure 4-25 as a guide. MORE

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Checking Account TransactionsSection 4-1 HOW TO: Reconcile a bank statement Calculate the adjusted statement balance by adding the statement balance and total outstanding deposits & credits, and then subtracting total outstanding checks and other debits. STEP 6 Statement balance + Total outstanding credits - Total outstanding debits Adjusted statement balance MORE

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved Checking Account TransactionsSection 4-1 HOW TO: Reconcile a bank statement STEP 8 If the adjusted statement balance does not equal the register balance, find the cause of the difference and correct the register, or notify the bank accordingly. Compare the adjusted statement balance with the adjusted register balance. The amounts should be equal. STEP 7 Write statement reconciled on the next blank line in the account register and record the statement date.

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved EXERCISE SET A

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved EXERCISE SET A MORE

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved EXERCISE SET A MORE

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved EXERCISE SET A MORE

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved EXERCISE SET A MORE

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved EXERCISE SET A

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved EXERCISE SET A MORE

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved EXERCISE SET A

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved EXERCISE SET A

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved PRACTICE TEST MORE

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved PRACTICE TEST

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved PRACTICE TEST

Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved