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SECTION 11.1
Banking Procedures
Protecting Cash
In any business, cash is used in daily transactions; it is
important to track cash received and paid out.
Cash should be protected. There are two ways to
protect cash:
 internal controls







Limiting number of people handling cash
Separating accounting tasks that involve cash
Bonding employees who handle cash
Using a cash register and a safe
Depositing cash receipts in the bank daily
Making all cash payments by check
Reconciling the bank statement
 external controls – done by bank (e.g. verify
accuracy of signatures on checks)
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SECTION 11.1
Banking Procedures
The Checking Account
A checking account holds cash deposits made by the
depositor, whether a person or business, and allows
them to write a check against the balance.
Opening a Checking Account
A checking account helps a person or business
 protect cash, and
 provides a record of cash transactions.
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SECTION 11.1
Banking Procedures
The Signature Card
A signature card and a cash deposit are needed to
open a checking account. A signature card is kept on file
at the bank to verify that signatures on checks are valid.
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SECTION 11.1
Banking Procedures
The Checkbook
A checkbook is a group of printed checks packaged
together and numbered in sequential order.
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SECTION 11.1
Banking Procedures
The ABA Number
Each check is printed with a check number, the bank
account number, and an American Bankers Association
(ABA) number. The ABA number:
 identifies the bank.
 speeds the hand sorting of checks.
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SECTION 11.1
Banking Procedures
Making Deposits
Most businesses make daily deposits to protect the cash
it receives. A deposit slip containing a detailed record
of the deposits accompanies them. To complete a
deposit slip:
 Write the date on the Date line.
 Indicate the total currency and coins on the Cash
line.
 List checks separately by their ABA numbers.
 Add the amounts and enter the total on the Total
line.
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SECTION 11.1
Banking Procedures
Endorsing Checks
A business acquires the right to a check when it receives a
check. The depositor’s endorsement is needed to deposit
the check in the checking account. The endorsement
transfers check ownership to the bank.
There are three types of endorsements a business can use.
 A blank endorsement does not indicate the new
owner of the check.
 A special endorsement transfers ownership of the
check to a specific individual or business.
 a restrictive endorsement places limitations on how
a check may be handled after ownership is
transferred.
Glencoe Accounting Unit 2 Chapter 11 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
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SECTION 11.1
Banking Procedures
Recording Deposits
To record a deposit in the checkbook, follow these
steps:
 Enter the date of deposit in the Add deposits line
on the check stub for the next unused check.
 Enter the total amount of the deposit.
 Add the deposit amounts to the amount on the
Balance brought forward line and enter the total
on the Total line.
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SECTION 11.1
Banking Procedures
Writing Checks
Here are a few important rules to writing checks:
 Complete checks in ink.
 Complete the check stub before writing the check.
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SECTION 11.1
Banking Procedures
Completing the Check Stub
The stub serves as a permanent record of the check and
must be complete and accurate. The two parts to the
check stub include
 the upper part containing the amount of the
check, the date, the name of the payee, and the
purpose of the check, and
 the lower part containing a record of how the
transaction affects the checking account.
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SECTION 11.1
Banking Procedures
Completing the Check Stub
The check stub is completed in the order corresponding
to the numbers below.
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SECTION 11.1
Banking Procedures
Filling Out the Check
To write a check, follow these steps:
1. Write the date the check is being issued.
2. Enter the payee’s name on the Pay To The
Order Of line.
3. Enter the amount of the check in numbers.
4. On the next line, write the dollar amount of the
check in words.
5. The drawer signs the check. The drawee is the
bank on which the check is written.
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SECTION 11.1
Banking Procedures
Filling Out the Check
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SECTION 11.1
Banking Procedures
Voiding a Check
Voiding a check is necessary if a mistake is made
while writing a check. Write Void in big letters across
the front in ink and prepare a new check.
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SECTION 11.2
Reconciling the Bank Statement
Proving Cash
Comparing the Cash in Bank account balance with the
checkbook is called proving cash. If the two amounts do
not match, there is probably an error in the checkbook.
Common checkbook errors are:
 faulty addition or subtraction
 failure to record a deposit or a check
 a mistake in copying the balance forward amount
to the next check stub
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SECTION 11.2
Reconciling the Bank Statement
The Bank Statement
A bank statement contains an itemized record of all
transactions in a depositor’s account. A bank returns the
canceled checks, usually as imaged checks, with the
bank statement.
When these are received, the statement is compared to
the checkbook, called reconciling the bank statement
or bank reconciliation. A checkbook can be out of
balance due to:
 outstanding checks
 outstanding deposits
 bank charges
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SECTION 11.2
Reconciling the Bank Statement
Outstanding Checks and Deposits
Outstanding checks are checks that have been written,
but have not been presented to the bank for payment.
Outstanding deposits are deposits that have been
made and recorded but do not appear on the bank
statement.
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SECTION 11.2
Reconciling the Bank Statement
Bank Service Charges
A bank service charge is a fee for maintaining bank
records and processing bank statement items for the
depositor. This fee is subtracted from the depositor’s
account and must be subtracted from the checkbook
balance before reconciling.
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SECTION 11.2
Reconciling the Bank Statement
Interest Paid
Some checking accounts earn interest on account
funds. The interest amount must be recorded in the
checkbook, journalized, and posted.
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SECTION 11.2
Reconciling the Bank Statement
The Bank Reconciliation
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SECTION 11.2
Reconciling the Bank Statement
Journalizing Bank Service Charges
Bank service charges must be recorded in the
accounting records. An example of recording a bank
service charge follows:
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SECTION 11.2
Reconciling the Bank Statement
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SECTION 11.2
Reconciling the Bank Statement
Special Banking Procedures
Three problems may occur when checks are written or
received and deposited:
 A business does not want the bank to pay an
issued check.
 A business receives and deposits a check from a
customer whose account does not have enough
money to cover the check.
 A customer presents a check that has a date in
the future.
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SECTION 11.2
Reconciling the Bank Statement
Stopping Payment on a Check
A stop payment order is issued when a drawer
instructs the drawee not to pay a check. To record a
stop payment order:
 Write Stopped Payment on the check stub for the
stopped check.
 Add the amount of the stopped check on the next
unused check stub.
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SECTION 11.2
Reconciling the Bank Statement
Recording NSF Checks
An NSF check is returned to the depositor because the
drawer’s account does not have enough funds to cover
the amount. NSF stands for Not Sufficient Funds. The
Check Clearing for the 21st Century, known as Check
21, allows the conversion of a paper check to an
electronic image that can be processed quickly. A bank
can pay a check on the same day it is written, instead of
several days later.
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SECTION 11.2
Reconciling the Bank Statement
Postdated Checks
A check that has a future date instead of the actual date
is called a postdated check. It should not be deposited
until the date that appears on the check.
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SECTION 11.2
Reconciling the Bank Statement
Electronic Funds Transfer System
The electronic funds transfer system (EFTS) handles
large volume of funds transfers and allows banks to
transfer funds among accounts quickly and accurately.
There are several ways EFTS impacts banking
activities:
 direct payroll deposit
 automated bill paying
 bankcards used at automated teller machines
(ATMs)
 bank-by-phone
 online banking
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