Accounting Chapter 7 Vocab

Qualified Endorsement

An endorsement in which the holder (payee) of a check avoids future liability, in case the drawer of the check does not have sufficient funds to cover the check, by adding the words "Pay to the order of" and "without recourse" to the endorsement on the back of the check.

Restrictive Endorsement

An endorsement, such as "pay to the order of (name of bank) for deposit only", that restricts or limits any further negotiation of the check. It forces the check's deposit, because the endorsement is not valid for any other purpose.

Collections

payments collected by the bank and added to the customer's bank account in the form of a credit memorandum.

Deposit Slips

printed forms provided by a bank on which customers can list all items being deposited; also known as deposit tickets.

Cash Funds

separately held reserves of cash set aside for specific purposes.

Interest Income

the amount earned from lending money to another person or business.

ABA Number

the number assigned by the American Bankers Association t a given bank. The first part of the numerator denotes the city or state in which the bank is located; the second part denotes the bank on which the check is drawn.

Drawer

the party who writes the check.

Change Fund

A cash fund used by a firm to make change for customers who pay cash for goods or services.

Petty Cash Fund

A cash fund used to make small immediate cash payments.

Petty Cash Voucher

A form stating who requested cash from the petty cash fund, signed by (1) the person in charge of the fund and (2) the person who received the cash, and indicating the purpose of the petty cash payment.

Petty Cash Payments Record

A record indicating the amount of each petty cash voucher, the accounts to which it should be charged, and the purpose of the expenditure.

Promissory Note

A written promise to pay a definite sum at a definite future time.

NSF (not sufficient funds) checks

Checks drawn against an account in which there are not sufficient funds and returned by the payee's bank to the drawer's bank because of nonpayment; also known as dishonored checks.

Outstanding Checks

Checks that have been written by the drawer and deducted on his or her records but have not reached the bank for payment and are not deducted from the bank balance by the time the bank issues its statement.

MICR

Magnetic Ink Character Recognition; the characters the bank uses to print the number of the depositor's account and the bank's number at the bottom of checks and deposit slips. The bank also prints the amount of the check in MICR when the check is deposited. A number written in these characters can be read by electronic equipment used by banks in clearing checks.

Ledger Balance of Cash

The balance of the Cash account in the general ledger before it is reconciled with the bank statement.

Service Charge

The fee the bank charges for handling checks, collections, and other items. It is in the form of a debit memorandum.

Signature Card

The form a depositor signs to give the bank a copy of the official signatures of any persons authorized to sign checks. The bank can use it to verify the depositor

Payee

The person to whom a check is payable.

Deposit in Transit

a deposit not recorded on the bank statement because the deposit was made between the time of the bank's closing date for compiling items for its statement and the time the statement is received by the depositor; also known as a late deposit.

ATM (automated teller machine)

a machine that enables depositors to make deposits, withdrawals, and transfers using a coded plastic card.

Check Writer

a machine that imprints the amount of a check in figures and words on the check itself.

Bank Statement

a periodic statement that a bank sends to the drawer/depositor of a checking account listing deposits received and checks paid by the bank, debit and credit memos, and beginning and ending balances.

Bank Reconciliation

a process by which an accountant determines whether and why there is a difference between the balance shown on the bank statement and the balance of the Cash account in the firm's general ledger. The object is to determine the adjusted (or true) balance of the Cash account.

Blank Endorsement

an endorsement in which the holder (payee) of a check simply signs her name on the back of the check; there are no restrictions attached.

Canceled Checks

checks issued by the depositor that have been paid (cleared) by the bank and listed on the bank statement. They are called canceled checks because they are canceled by a stamp or perforation, indicating that they have been paid.

Endorsement

the process by which the payee transfers ownership of the check to a bank or another party. A check must be endorsed when deposited in a bank, because the bank must have legal title to it in order to collect payment from the drawer of the check (the person or firm who wrote the check). In case the check cannot be collected, the endorser guarantees all subsequent holders (exception: an endorsement "without recourse".)

Denominations

varieties of coins and currency, such as quarters, dimes, and nickels and $1 and $5 bills and so on.