Quiz 6 Wealth Mngmnt (FI:075, FI:069, FI:070)

Melissa writes checks to pay for her rent, utilities, and groceries, and she keeps a record of all these transactions in her check register. Keeping an accurate check register helps Melissa

A check is a negotiable instrument or bank draft made payable to a specific party for a specific amount of money. A check serves as a written promise to the check bearer that money is available in the issuer's bank account. Checks are a common form of financial exchange. Both individuals and businesses use checks to pay for goods and services such as rent, utilities, food, and supplies. When writing a check, an individual or business keeps a check register that records information about the transaction. This information includes the date the check is written, to whom the check is made payable, the amount of the check, and the check number. The register is a central location to record and track all of the checks written and the amount of money spent. Check registers do not help the check issuers determine when to add funds to a savings account, understand the checking account's restrictions and fees, or decide when to order new checks. SOURCE: FI:069 SOURCE: Kapoor, J.R., Dlabay, L.R., Hughes, R.J., & Hoyt, W.B. (2005). Business and personal finance (pp. 143-145). New York: Glencoe/McGraw-Hill.

What should you use to record transactions impacting your bank account?

A checkbook register is a booklet in which you can write all of your checking transactions. It helps you to track how much money goes into (as deposits) and out of (as withdrawals) a given checking account. Routing numbers appear at the bottom of checks to identify a particular financial institution with the account. A watermark is an image or text impressed into paper (such as U.S. currency) that can be seen when held up to a light source. A certificate of deposit is a lending investment in which individuals lend money to a bank to earn a set rate of interest for a specified period of time. SOURCE: FI:069 SOURCE: Ryan, J.S. (2008). Personal financial literacy (pp. 126-127).Mason, OH: South-Western Cengage Learning.

Which of the following is a type of financial-services provider:

A commercial bank provides a variety of financial services to individuals and businesses. Besides providing savings accounts and other savings options, banks also make loans and offer credit cards. Many large banks have trust departments and help individuals plan for retirement. Depending on the size of the bank, it may be possible to obtain all necessary financial services from that institution. The stock market itself does not provide financial services. A taxation department collects various types of taxes. A retirement community provides housing rather than financial services. SOURCE: FI:075 SOURCE: Kapoor, J.R., Dlabay, L.R., Hughes, R.J., & Hoyt, W.B. (2005). Business and personal finance (pp. 124-129). New York: Glencoe/McGraw-Hill.

Which of the following is an advantage of using an online brokerage firm:

One of the advantages of using an online brokerage firm is 24-hour access to your account. Many self-directed investors like being able to access this information at any time without having to call or visit their broker. Online brokerages do not offer personal guidance from a live broker or many additional financial products and services. Online brokerages usually have low commissions rather than high ones. SOURCE: FI:075 SOURCE: Investopedia. (2009). Brokers and online trading: Full-service or discount? Retrieved September 15, 2009, from http://www.investopedia.com/university/broker/broker2.asp

Reconciling a personal bank statement is the process of determining any differences between the bank statement balance and the

Reconciling a bank statement is the process of determining any differences between the bank statement balance and the checkbook balance. A company's balance sheet is not part of maintaining a personal bank account or its records. Canceled checks and deposit slips are used during bank-statement reconciliation to determine if accurate records have been kept. SOURCE: FI:070 SOURCE: Guerrieri, D.J., Haber, F.B., Hoyt, W.B., & Turner, R.E. (2004). Accounting: Real-world applications & connections (p. G-8). New York: Glencoe/McGraw-Hill.

When Armand is comparing his checkbook balance with his bank statement, he must make sure that he has subtracted the ____________ from his checkbook.

Reconciling bank statements involves comparing the entries in a checkbook with the entries listed on the bank statement. It is important to make these comparisons to determine inconsistencies and mistakes. If a check is not recorded correctly, and if the mistake is not caught, the individual runs the risk of having insufficient funds in his/her checking account, which results in bounced checks. Some financial institutions charge transaction fees for checking accounts, so it is important to make sure that those fees are subtracted from the checking account balance. Accumulated interest and payroll deposits are added to the checking account balance rather than subtracted from it. Check numbers are not subtracted from the checkbook when reconciling bank statements and checkbook balances. SOURCE: FI:070 SOURCE: Kapoor, J.R., Dlabay, L.R., Hughes, R.J., & Hoyt, W.B. (2005). Business and personal finance (pp. 146-147). New York: Glencoe/McGraw-Hill.

Why is it important to read and reconcile bank statements?

Reconciling bank statements involves comparing the entries in a checkbook with the entries listed on the bank statement. This procedure is also known as balancing an account. The purpose is to determine the actual amount of money that is in the account. To do this, it may be necessary to add in deposits that have not been posted or subtract checks that have not cleared. If the checking account pays interest, that amount will be listed on the bank statement. It is not necessary to read and reconcile bank statements to withdraw excess money or to make a deposit. SOURCE: FI:070 SOURCE: Kapoor, J.R., Dlabay, L.R., Hughes, R.J., & Hoyt, W.B. (2005). Business and personal finance (p. 147). New York: Glencoe/McGraw-Hill.

Patrick wants to keep a certain amount of his money in a safe place in which he can earn interest on his savings, and also be able to withdraw his funds without experiencing sizable financial penalties. In what type of financial institution should Patrick consider placing his money?

Retail banks provide a variety of financial services, including savings and checking accounts for individuals. Opening a savings account with a properly insured bank will provide Patrick with a safe place to keep his money, and he will earn interest on the money that he places in his savings account. Patrick will also be able to remove money to pay bills without incurring the financial penalties he might experience if he borrowed money from his retirement fund. Investing in the stock market involves risk; however, Patrick may earn dividends on stocks that perform well. A holding company (parent company) is a business that owns the majority of another company's shares of stock. SOURCE: FI:075 SOURCE: Strand, R. W. (2002). Banking today: Learner's handbook (pp. 38-39). Washington: American Bankers Association.

Which of the following helps individuals select the type of life insurance to buy and the most appropriate investments:

There are many types of financial planners who help clients develop investment plans and prepare for the future. These planners provide financial services such as recommending and selling life insurance, mutual funds, stocks and bonds, etc. Part of what they do is provide advice on how their clients can achieve their financial goals. Certified public accountants, trust departments, and local bank managers usually do not help individuals select the type of life insurance to buy and the most appropriate investments. SOURCE: FI:075 SOURCE: Kapoor, J.R., Dlabay, L.R., Hughes, R.J., & Hoyt, W.B. (2005). Business and personal finance (pp. 259-260). New York: Glencoe/McGraw-Hill.

Matt is balancing his checkbook for the first time. He compares the checks he has written over the last month with those listed on his statement and finds that all of his checks have cleared. Next, he verifies that his latest paycheck, which he deposited the previous day, is on the list. It is not, so he adds it to his statement balance. After this, he should

To complete checkbook balancing, Matt needs to subtract fees and charges. Some financial institutions charge a monthly fee on bank accounts, especially those with less than a certain balance. They also have charges for new checks, bounced checks, etc. All of these charges must be subtracted from the balance in the check register to obtain an accurate monthly balance. Interest is added to, not subtracted from, the check register balance. Matt does not need to call the bank for a new statement just because the latest deposit is not on his current statement. He does need to subtract fees and charges and add any interest before he can consider everything done. SOURCE: FI:070 SOURCE: Kapoor, J.R., Dlabay, L.R., & Hughes, R.J. (2005). Personal finance (p. 147). New York: Glencoe/McGraw-Hill.

When should you record bank transactions in your check register?

To keep accurate records, you need to record all information in the check register as each transaction occurs. Otherwise, the date, check number, or check amount may be recorded inaccurately. Waiting to record check information can result in difficulties with balancing bank statements when they arrive. This could also result in checks being returned to you for inadequate funds. SOURCE: FI:069 SOURCE: Credit Union National Association. (2009). The balancing act part 1: Keep good records. Retrieved October 19, 2010, from http://googolplex.cuna.org/12433/cnote/article.php?doc_id=1608