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Checking Account Simulation. Understanding Checking Accounts. What is a Checking Account?. Tool used to transfer funds deposited into the account to make a cash purchase Could also be named a transaction account Common financial service used by many consumers Available at banks.

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checking account simulation

Checking Account Simulation

Understanding Checking Accounts

what is a checking account
What is a Checking Account?
  • Tool used to transfer funds deposited into the account to make a cash purchase
  • Could also be named a transaction account
  • Common financial service used by many consumers
  • Available at banks
checking accounts continued
Checking Accounts continued
  • Services and fees will vary depending upon the financial institution
    • Research the financial institution and type of account before choosing
  • Many financial institutions offer telephone and internet banking services to customers
benefits
Benefits
  • Can help to manage money
  • Written record of expenses
    • Check register
  • Makes bill paying more convenient
  • Reduces the need to carry large amounts of cash
  • Most liquid of cash management tools
    • Considered cash
how do they work
How Do They Work?
  • Money is deposited into the account with a deposit slip
  • Pay the transaction by:
    • Writing a check
    • Using an ATM and/or debit card
    • Using electronic banking
characteristics
Characteristics
  • Funds are easily accessible through:
    • A check
    • Automated teller machine (ATM)
    • Debit card
    • Telephone
    • Internet
what is a check
Piece of paper pre-printed with the account holder’s:

Name

Address

Financial institution

Identification numbers

To completed check, fill in the:

Amount

Payee

To whom the check was written

Date

Signature

What is a Check?
  • Used at the time of purchase as the form of payment
bouncing a check
Bouncing a Check
  • Check written for an amount over the current balance held in the account
    • ‘Bounces’ due to insufficient funds
  • Assessed a substantial fee by both the financial institution and the payee
  • Can cause harm to credit report
    • Financial institutions report to credit bureaus the account holder’s failure/success to manage his/her checking account properly
      • Used as a guide for future inquiries for credit
other checking components
Other Checking Components
  • Register
    • Place to immediately record all monetary transactions for a checking account
      • Written checks, ATM withdrawals, debit card purchases, deposits, fees, etc.
  • Checkbook
    • Contains the checks and the register to track monetary transactions
atm fees
ATM Fees
  • ATMs are owned by different financial institutions
  • Fees may be charged to the account for ATM use
  • Fees range from $0.50 to $5.00
    • Usually free to account holders of the financial institution
atm card
ATM Card
  • Card given to account holder to make financial transactions at ATMs
  • In the shape of a credit card, but can only be used in designated places
  • Must use personal identification number (PIN) to access the account
    • A protected number given or chosen by the account holder to allow access to the account
types of accounts available
Types of Accounts Available
  • Financial institutions offer different types of checking accounts
    • All have own characteristics
    • Research all of the requirements and restrictions before opening the account
  • Basic types/guidelines include:
    • Regular checking
    • Free checking
    • Special checking
    • Interest-Earning checking
regular checking
Regular Checking
  • No monthly charge if minimum balance is maintained
  • No interest is given
  • Unlimited check writing
free checking
Free Checking
  • No charges or fees for using the account
  • No minimum balance required
  • Unlimited check writing
  • Usually for a specific group:
    • Students
    • Seniors
special checking
Special Checking
  • Generally for people who write only a few checks and keep a low balance
  • Basic account which pays no interest
  • Monthly service charge or fee for each transaction
  • May have restrictions on number of transactions each month
interest earning checking
Interest-Earning Checking
  • Pays interest on money in account
    • Usually the lowest interest rate of all the cash management tools
  • Minimum balance required
  • Unlimited check writing
  • Called a share draft at credit unions
opening a checking account
Opening a Checking Account
  • Most applications are completed on a computer to process quickly
    • Customer may have to complete a brief hand-written application to be entered into the computer by new accounts personnel
  • Customer must have:
    • Picture identification
    • Name, address, phone number, and social security number
opening continued
Opening continued
  • If customer is approved, he/she completes a signature card
    • Contains account information about the new account and his/her signature
    • Used to verify the signature for each signed transaction for the account to prevent fraud
  • Completion of the signature card means the customer agrees to all terms and conditions of the account
opening continued1
Opening continued
  • If offered, customers may choose to have an ATM and/or debit card for the account
    • May be required to complete another form
  • An initial deposit must be made
    • Amount will vary among different financial institutions and type of account
ordering checks
Ordering Checks
  • New customers are provided starter checks to use until the ordered checks arrive
    • Generic checks with account number and financial institution pre-printed
    • Customer information is hand written
  • Many businesses do not accept starter checks
    • Take this into consideration before making the initial deposit
    • Ordered checks may take 5 to 10 business days to arrive
ordering continued
Ordering continued
  • Personal information on checks
    • Name
    • Address
    • Optional: phone number, driver’s license number
    • DO NOT put the account holder’s social security number on the check for security reasons
ordering continued1
Ordering continued
  • Design of the check is customer’s choice
    • Customer pays for checks
      • Price depends on the style
    • Style of the check does not change how a check works
    • Some financial institutions may offer basic checks free of charge
  • Single or duplicate checks are available
ordering continued2
No records of written checks

Each check must be logged in the register immediately to track transactions

Provides a written record of each check with the carbon copy

Convenient in case the check was not recorded into register immediately

Ordering continued

SingleDuplicate(carbon copy)

endorsing a check
Endorsing a Check
  • Endorsement
    • Signature on the back of the check from receiving person approving it for deposit
    • A check must be endorsed to be deposited
  • Three types
    • Blank
    • Restrictive
    • Special
  • Safest way to endorse the check is to wait until going to the financial institution to deposit or cash the check
blank endorsement
Blank Endorsement
  • Receiver of the check signs his/her name
  • Anyone can cash or deposit the check after has been signed
restrictive endorsement
Restrictive Endorsement
  • More secure than blank endorsement
  • Receiver writes “for deposit only” above his/her signature
    • Allows the check to only be deposited
special endorsement
Special Endorsement
  • Receiver signs and writes “pay to the order of (fill in person’s name)”
  • Allows the check to be transferred to a second party
    • Also known as a two-party check
making a deposit
Making a Deposit
  • Deposit slip
    • Contains the account holder’s account number and allows money (cash or check) to be deposited into the correct account
    • Located in the back of the checkbook
  • Complete a deposit slip to make a deposit
    • Give to financial institution along with cash and/or check
    • Checks must be endorsed to be deposited
  • Deposited amount must be recorded in the check register to keep the balance current
completing a deposit slip
Completing a Deposit Slip
  • Date
    • The date the deposit is being made
completing a deposit slip1
Completing a Deposit Slip
  • Signature Line
    • Sign this line to receive cash back
completing a deposit slip2
Completing a Deposit Slip
  • Cash
    • The total amount of cash being deposited
completing a deposit slip3
Completing a Deposit Slip
  • Checks
    • List each check individually
      • Identify each check on the deposit slip by abbreviating the name of the check writer
completing a deposit slip4
Completing a Deposit Slip
  • Checks
    • If more checks are being deposited than number of spaces on the front, use the back
    • List each check
    • Add the total, enter it on the front
completing a deposit slip5
Completing a Deposit Slip
  • Total from Other Side
    • The total amount from all checks listed on the back
completing a deposit slip6
Completing a Deposit Slip
  • Subtotal
    • The total amount of cash and checks
completing a deposit slip7
Completing a Deposit Slip
  • Less Cash Received
    • The amount of cash back being received
    • This amount is not deposited into account
completing a deposit slip8
Completing a Deposit Slip
  • Net Deposit
    • The amount being deposited into the account
    • To calculate the amount, subtract the cash received from the subtotal
writing a check
Writing a Check
  • To pay for items using a checking account
    • A check is given as a form of payment
    • Must be completed and given to the person or business
  • Pre-printed items on a check
    • Name and address of account holder
    • Name and address of financial institution
    • Check number
    • Identification numbers (account, routing)
writing a check1
Writing a Check
  • Personal Information
    • Account holder’s name and address
    • May include a phone number, not required
    • DO NOT list a social security number for safety reasons
writing a check2
Writing a Check
  • Check Number
    • Numbers used to identify checks
    • Printed chronologically
writing a check3
Writing a Check
  • Date
    • The date the check is written
writing a check4
Writing a Check
  • Pay to the Order of
    • The name of the person or business to whom the check is being written
writing a check5
Writing a Check
  • Amount of the Check in Numerals
    • The amount of the check written numerically in the box
    • Write the cents smaller and underline
    • Write the numbers directly next the dollar sign to prevent someone else from adding numbers to change the amount
writing a check6
Writing a Check
  • Amount of the Check in Words
    • The amount of the check written in words on the second line
    • Start at the far left of the line, write the amount in words, followed by ‘and’, and the amount of cents over 100; draw a line from the end of the words to the word ‘dollars’
writing a check7
Writing a Check
  • Memo
    • Space used to identify the reason for writing a check; optional
    • Good place to write information requested by a company when paying a bill, generally the account number
writing a check8
Writing a Check
  • Signature
    • The account holder’s signature agreeing to the transaction
writing a check9
Writing a Check
  • Identification Numbers
    • First - routing numbers to identify the account’s financial institution
    • Second - account number
    • Third - check number
check 21
Check 21
  • Check Clearing for the 21st Century Act (Check 21)
    • Current trend that changes how money is withdrawn from customers account and deposited into businesses account
how check 21 works
How Check 21 Works
  • Prior to Check 21
    • Paper checks physically moved from customer to business to various banks and the transfer of money from customer’s bank to business’ bank took days
  • After Check 21
    • Paper checks are scanned into a computer system at the place of business and immediately returned to the customer. This electronic copy of the check is called a substitute check. The substitute check is then transferred electronically to various banks and the transfer of money customer’s bank to business’ bank takes hours
check register
Check Register
  • Place to immediately record all monetary transactions for a checking account
      • Written checks, ATM withdrawals, debit card purchases, deposits, fees, etc.
  • Used to keep a running balance of the account
  • Remember -
    • Record every transaction!
check register1
Check Register
  • Date
    • The date the check was written or transaction was made
check register2
Check Register
  • Number
    • The number of the written check; if a debit card or ATM was used, write DC or ATM
check register3
Check Register
  • Description of Transaction
    • The person/business the check was written to or where the debit card was used
    • Gray line can be used to write the memo
check register4
Check Register
  • Payment/Debit(-)
    • Amount of the transaction
    • Deducted from the balance
check register5
Check Register
  • Deposit/Credit(+)
    • Amount of the transaction
    • Added to the balance
check register6
Check Register
  • √ T
    • A box used to track whether the check has cleared on the monthly bank statement when reconciling at the end of each month
check register7
Check Register
  • Fee (if any)
    • Any extra fees charged to the account
    • Listed on the bank statement
check register8
Check Register
  • Balance
    • The running total of the checking account
    • Calculated by adding or subtracting each transaction
    • Keep this updated
monthly statement
Monthly Statement
  • Lists each monetary transaction and the current account balance for a specified time period
  • Includes:
    • Dates
    • Identification for each transaction (number or type, date, amount)
    • Transaction amounts for withdrawals and/or deposits
    • Interest earned (if applicable)
    • Fees or charges (if applicable)
monthly statement continued
Monthly Statement continued
  • If customer holds more than one account at the same financial institution
    • May receive one statement for both
      • For example: a checking and a savings account
    • May be mailed separately
reconciling a checking account
Reconciling a Checking Account
  • Reconcile
    • Balance the checkbook register each month to the balance shown on the statement
  • Do this every month to ensure the correct balance in the checkbook
    • Knowing the correct balance can help to avoid bouncing checks
steps for reconciling
Steps for Reconciling
  • Make sure every transaction listed on the statement matches the check register
  • Place a check next to each item once it has been double-checked between the statement and register
    • Do this for both withdrawals and deposits
  • Identify any outstanding transactions in the check register
    • Items which have not cleared through the financial institution and are not listed on the statement
steps for reconciling continued
Steps for Reconciling continued
  • Start with checking account balance on the statement
  • Add any outstanding deposits
  • Subtract any outstanding withdrawals
  • Compare this result with the current balance in the check register
    • They should be the same
reconciling example
Reconciling Example
  • Statement balance $204.00
  • Add $154.01+
    • Outstanding deposits
      • 8/30 - $154.01
  • Subtract $44.75-
    • Outstanding withdrawals
      • #299 - $19.75
      • #300 - $25.00
reconciling example continued
Reconciling Example continued
  • Total $313.26
  • Remember - this figure should be the same as the check register
  • If not, double-check the math, look for mistakes
    • Make sure all service fees and charges have been added to the check register
checking account safety
Checking Account Safety
  • If a checkbook, ATM, and/or debit card becomes lost or stolen
    • Immediately report it to the financial institution
    • File a report with the police
  • Reported lost/stolen checkbook:
    • Financial institutions generally do not hold the account holder liable for any fraudulent charges
safety continued
Safety continued
  • Reported lost/stolen ATM/debit card:
    • Within 2 business days
      • Cardholder is only liable for $50.00
    • Longer than 2 business days
      • Could be liable for up to $500.00
    • Varies depending upon the financial institution
      • May not charge the account holder anything if the correct steps were taken to report the lost/stolen card
conclusion
Conclusion

Research before choosing a financial institution and checking account!

Follow the precautions to prevent checking account fraud!

Report a lost/stolen checkbook, ATM, and/or debit card immediately!

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