CHAPTER TWENTY FOUR

BANKING PROCEDURES

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1. Open and use a checking account.

2. Endorse checks.

3. Prepare deposit slips.

4. Complete check stubs and write checks.

5. Reconcile the bank statement.

BANKING PROCEDURES

Objectives:

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Opening a Checking Account

The owner of a new business should open a checking account. Banks require signature cards to be completed and will accept a deposit to open the account.

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Making Bank Deposits

Bank deposits should be made often to protect cash receipts.

Deposits must be prepared properly.

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Making Bank Deposits (continued)

Coins and currency should be counted and wrapped.

Checks and money orders must be endorsed.

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Writing Checks

A check gives authorization for the bank to pay a stated amount of money from the business’s account.

The information about the checks is recorded in the check register or on the check stub.

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Writing Checks (continued)

•Checks should be numbered consecutively.

•The check register or check stub should be completed before the check is written.

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Writing Checks (continued)

•Checks should be prepared in ink, typewritten, or printed by a computer.

•There must be no alterations or erasures on a check. If an error is made, the word VOID is written in large letters across the face of the check and on the stub.

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Writing Checks (continued)

•Checks must be carefully prepared to prevent later changes in the amount or name of the payee.

•Checks must have an authorized signature.

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Reconciling the Business’s Records With the Bank Statement

Most banks send a bank statement every month that includes the canceled checks the bank has paid.

The bank may not know about deposits in transit that you have recorded.

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Reconciling the Business’s Records With the Bank Statement (continued)

To the balance on the bank statement you must add deposits in transit and subtract outstanding checks.

To the balance in the checkbook you must add corrections (if any) and subtract any bank charges.

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Reconciling the Business’s Records With the Bank Statement (continued)

The adjusted bank balance must agree with the adjusted checkbook balance.

If there are errors, correcting entries must be journalized to reflect the corrections.

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Other Bank Services

Banks also provide safety deposit boxes, financial planning, processing of sales with bank cards, and special services that will help you conduct your business more efficiently.

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Accounting Terminology

•Bank reconciliation

•Bank statement

•Blank endorsement

•Canceled checks

•Certified check

•Check

•Check register

•Check Stub

•Credit memorandum

•Debit memorandum

•Deposit slip

•Deposits in transit

•Drawer

•Endorsement

•Full endorsement

•Night depository

•Outstanding checks

•Payee

•Restrictive endorsement

•Service charge

•Signature card

•Stop payment order

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Chapter Summary

•A well-run business deposits all its cash receipts in a bank and makes all cash payments by check.

•Bank deposits should be made often to protect cash receipts. A deposit slip must accompany the coins, currency, and checks that are deposited.

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Chapter Summary (continued)

•Every check must be endorsed before it is deposited. An endorsement legally transfers the right to collect payment on a check.

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Chapter Summary (continued)

•A business must have a record of its checks, deposits, and account balance. This information is usually shown on check stubs or in a check register. The register or stub should be completed before the check is written.

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Chapter Summary (continued)

•All checks should be prepared with care and accuracy.

•Most banks send a monthly bank statement along with canceled checks.

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Chapter Summary (continued)

•All accounts should be reconciled regularly to detect any errors.

•After the reconciliation procedure is completed, any unrecorded bank charges or credit memorandums must be entered in the accounting records and checkbook.

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Chapter Summary (continued)

•The cancelled checks should be stored in a check file.

•Banks provide a variety of services that are useful to businesses.

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Investigating on the Internet

As a research assignment, access the Wachovia Bank site and report those sources of information that might concern statements.

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1. Deposits should be made frequently to protect cash receipts.

2. Businesses should always have a

checking account for doing business.

3. Deposits include coins, currency, non-endorsed checks, and endorsed checks.

Topic QuizAnswer the following true/false questions:

TRUE

FALSE

TRUE

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(Return to Topic Quiz)

3. Deposits include coins, currency, non-endorsed checks, and endorsed checks.

FALSEAll checks should be endorsed.