Bank Reconciliation and Checking Accounts

Routing Transit Number (RTN)

A nine-digit numerical code used to identify a banking or other financial institution to clear funds or process checks in the U.S. The routing transit number, as it appears on the check, specifically denotes the banking institution that holds the account in which the funds from the check are to be drawn.

Payee

A person to whom a check is written

money order

A form of check payment on which the financial institution prints the exact amount covered. Often used by people who do not have a checking account. (pay them and they write your check)

service charges

fees charged by the bank that we didn't know about until we received the bank statement -banks charge for a variety of reasons (ex: dishonored/bounced checks, minimum balance requirements, sometimes it's just a monthly processing fee) -banks just take the money directly out of our bank account when we owe them fees.

restrictive endorsement

for deposit only - the check can only be deposited into a certain account (safest if not going to bank right away)

Overdraft protection

service offered by banks to protect you against overdrawing your account -banks typically charge a fee for this -if you have a another account at the bank you can authorize an automatic transfer of funds to prevent the overdraft (gets rid of fee when someone writes you a bad check) -sometimes banks will automatically lend you money to cover the overdraft, and charge you interest on the loan

Blank endoresement

signature only, anyone can cash it

Overdraft

term refers to writing a check for an amount that exceeds the balance in your account- aka insufficient funds -banks charge fees, like with any dishonored check -once one check is dishonored insufficient funds, any subsequent checks will likely also be dishonored, each with it's own set of frees. (charges payor and payee)

Reconciling items

things that explain the difference between checkbook register and bank statement

Debit to your account

withdrawals from an account

Are you going to do well on this test?

yess!!! :)))

traveler's check

check forms in specific denominations that are used instead of cash while traveling (need two signatures that match one when purchased, and one when used as payment.

outstanding checks

checks that you wrote which are recorded in your checkbook register but do not show up on the bank statement

Bank reconciliation

comparing your checkbook register to the bank statement to make sure they agree (catches errors made by you and/or the bank)

outstanding deposits

deposits that have been made and recorded in the checkbook but do not appear on the bank statement

Credit to an account

deposits to an account

The adjusted checkbook register and bank balance must ________ when done

equal *Note: If your adjusted balances do not equal, that means there is an error somewhere that you need to find and correct so that your bank reconciliation works.

How much does the FDIC insure?

$250,000 for each type of account at each bank

Steps for preparing a bank reconciliation

1. Record ending balance from checkbook register and bank statement as your starting point for both sides of the reconciliation. 2. Compare your checkbook register and bank statement and identify the checks/payments and deposits that exist on both documents. Place a checkmark next to these items (there's a column dedicated for this in your checkbook register.) Be careful to only check off items that show up on both documents. 3. The unchecked items that remain on your checkbook register and bank statement are "reconciling items" and need to be recorded in the appropriate part of the reconciliation form. Important Note: do NOT check off items once you have written them down in the reconciliation. A check mark means they are on both the banks statement and checkbook register. Unchecked items will show up on the next month's bank statement so it is important they remain unchecked. 4. Do the math to calculate the adjusted checkbook and bank statement balances then make sure the amounts agree. If they do not agree you need to review your checkbook register for errors (checks you omitted, math errors...), fix the errors and then finish the reconciliation. 5. Record the service charge in your checkbook register ,check it off and update your checkbook register balance.

how to reconcile your bank account and credit account

1. fill out checkbook register - write check #/ATM/Debit -write date -write company/paycheck/ cash for ATM (ATM is a withdrawal and don't forgot fees) -record payment or debit -record fees if any -record deposit/credit -record balance after transaction -find the ending balance on your bank statement 2. check off any items that are on both the checkbook register and bank statement 3. items that are not checked off are reconciling 4. reconciliation form -balance in checkbook register -subtract any bank charges (fees) = adjusted check register balance Bank statement -current balance -add any outstanding deposits ( money earned but not on checkbook register) -subtract outstanding checks and write check number and amount (checks not on register) =adjusted bank balance SHOULD EQUAL *NOTE add service fee to checkbook register if you have one

reasons bank refuses to cash checks

1. insufficient funds 2. check appears to be altered (pencil, modified) 3. amounts don't match (number isn't same as words) 4. not authorized signature (should match signature card on file at bank) 5. stop payment order (if you contact the bank before your check is presented you can pay a fee to have the check dishonored) 6. stale or post-dated (if a check is more than 60-90 days it is considered stale, if a check is dated in the future it is referred as post dated) *banks charge fee to both payor and payee if a check is dishonored

how do outstanding check happen

1. the check you wrote is still in transit (mail) 2. the payee (person you sent check to) hasn't yet taken it to the bank 3. your check is still going through the bank clearinghouse process (payee takes check to their bank, their bank forwards check to Federal Reserve bank/clearinghouse, Federal Reserve sends check to your bank, your bank takes money out of your account and records deduction)

how do outstanding deposits happen

1. you make a deposit the day the bank prints the bank statement 2. while it's in transit on it's way to you (referred to as a timing difference)

account number

10-12 digit number specific to your personal account. Second set of numbers on the bottom of your check. Printed on all deposit slips, checks, withdraw slips, and monthly statement.

certified check

A check for which the bank assures that the drawer has sufficient funds to make payment. -typically used when payee is unsure of payor's creditworthiness

special endoresement

An endorsement indicating a new owner of a check

Formula for bank reconciliation

Checkbook register Ending balance per checkbook register -service charges _________________________________________________________ Adjusted checkbook balance Bank Statement Ending balance per bank statement -outstanding checks +outstanding deposits __________________________________________________________ Adjusted bank statement balance (Must be the same in end)

How to write a check

Fill out today's date on the short line on the top right side of the check. On the line next to PAY TO THE ORDER OF, enter the name of the person or company you intend to give money to. In the box to the right of this line and the dollar sign, enter the amount the check is for - in numbers (e.g., 97.98). On the next line, write out, in words, the dollar amount of the check (e.g., Ninety-seven and 98/100). This amount must match the numbers you entered in the box. To ensure the check won't be tampered with, fill the entire line. At the bottom left, you can make a note to help you remember what the check is for; or, if you're paying a bill and the company asks you to include an account number, put it goes here. Your signature goes on the line at the bottom right. Your check won't be accepted without a signature, so be sure to include it.

Payor

The person who writes the check to another

EFT (electronic funds transfer)

The process of exchanging account information electronically over private communications networks; also known as wire transfers.

Joint account

a bank account held by more than one person, each individual having the right to deposit and withdraw funds.

dishonored check

a check that a bank refuses to pay- also known as a bounced check

voiding a check

a check that contains an error or isn't going to be used for some reason should be voided -need to make sure the check won't be erroneously cashed or deposited -techniques 1. write VOID in large letters all over the check 2. tear of signature portion of check 3. shred the check (best option) Noted: Still need to record check in your checkbook register so you don't forget why that check number won't show up on a bank statement.

Cashier's Check

a check written by a bank on its own funds, signed by the bank, equivalent to cash because the payor pays the amount of the check as well as a fee in order for the bank to issue a cashier's check -this is safest because funds come from the bank, not the payor's account

Checkbook register

a journal that is used to record all checks, cash payments, and any other cash transactions.

Endoresement

a signature on the back of a check