The Basics of Checking Accounts

How Checking Accounts Work

A check is a written order directing a bank or other financial institution to pay money on demand to the person or company named on it.
A customer opens a checking account by depositing money into a bank.
The payee can either deposit the check or cash it.
Most banks offer several types of checking accounts.
- A regular checking account is designed for customers who write a few checks each month and do not keep a minimum amount of money in the account.
Direct deposit allows electronic transfers of payments directly from the payer’s account to the account of the person being paid.
- An interest-bearing account is an account that earns interest on the balance for the depositor.
- You might also open a joint account, an account that allows two people who are equally responsible for the account to write checks
Once you decide what type of account you want, you must fill out a signature card at the financial institution.
- A signature card is a record of an account holder’s signature used to verify identity.

Account Services and Other Offerings

When an account is overdrawn, it means that the account owner has written checks for more money than the balance in the account.
- An overdraft is the amount that is overdrawn.
- Overdraft protection is a line of credit for overdrawn checks.
  - You may pay a service fee and interest for overdraft protection.
A stop payment is an order for a bank not to cash a particular check.
- It also usually requires a fee.
A debit card is a bank card that immediately takes money from a checking account when it is used.
Technology allows consumers to handle many banking transactions over the Internet.
Online banking allows consumers to check their account balances, transfer money, or pay bills at any time.

Account Records

Keeping Track of Financial Transactions

An advantage of checking accounts is that they enable consumers to keep records of their financial transactions.
There are usually three people, or parties, named on a check.
- The payee is the party to whom the check is written, or who is cashing the check.
- The drawer is the party who wrote the check and is paying the money, or drawing it from an account.
- The third party is the drawee, the financial institution where the drawer has an account.
Banks and other companies use the information printed on checks to route a check to your account for payment
When you write a check, record the check number, the amount of the check, the date, and the name of the payee in a check register.
- A check register is a checkbook log in which an account holder records checking account transactions.
To deposit cash or a check in your account, fill out a deposit slip.
To deposit or cash a check requires an endorsement, or the signature of the payee on the back of the check.
Once a month, banks issue a bank statement, the bank’s record of all the transactions in a checking account.
- The statement includes a record of all withdrawals, deposits, interest, and fees.
- It also includes a record of all canceled checks, or checks that have been cashed.

Reconciling Your Account Records

Bank reconciliation is the process of seeing whether an account holder’s records agree with the bank’s records for the account.
- The first step to reconciling your account is to see whether the bank has processed all of your checks and deposits.
With the bank statement and your check register, you can identify your outstanding checks, or checks that have been written but have not yet been cashed.
If you have made any deposits or ATM withdrawals that have not been recorded on the bank statement, those transactions should be factored into the bank statement balance.
Once the balance on the bank statement and the balance in your check register are the same, you have reconciled your check register balance with the bank statement balance.

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Chapter 29: Checking Accounts

The Basics of Checking Accounts

How Checking Accounts Work

A check is a written order directing a bank or other financial institution to pay money on demand to the person or company named on it.
A customer opens a checking account by depositing money into a bank.
The payee can either deposit the check or cash it.
Most banks offer several types of checking accounts.
- A regular checking account is designed for customers who write a few checks each month and do not keep a minimum amount of money in the account.
Direct deposit allows electronic transfers of payments directly from the payer’s account to the account of the person being paid.
- An interest-bearing account is an account that earns interest on the balance for the depositor.
- You might also open a joint account, an account that allows two people who are equally responsible for the account to write checks
Once you decide what type of account you want, you must fill out a signature card at the financial institution.
- A signature card is a record of an account holder’s signature used to verify identity.

Account Services and Other Offerings

When an account is overdrawn, it means that the account owner has written checks for more money than the balance in the account.
- An overdraft is the amount that is overdrawn.
- Overdraft protection is a line of credit for overdrawn checks.
  - You may pay a service fee and interest for overdraft protection.
A stop payment is an order for a bank not to cash a particular check.
- It also usually requires a fee.
A debit card is a bank card that immediately takes money from a checking account when it is used.
Technology allows consumers to handle many banking transactions over the Internet.
Online banking allows consumers to check their account balances, transfer money, or pay bills at any time.

Account Records

Keeping Track of Financial Transactions

An advantage of checking accounts is that they enable consumers to keep records of their financial transactions.
There are usually three people, or parties, named on a check.
- The payee is the party to whom the check is written, or who is cashing the check.
- The drawer is the party who wrote the check and is paying the money, or drawing it from an account.
- The third party is the drawee, the financial institution where the drawer has an account.
Banks and other companies use the information printed on checks to route a check to your account for payment
When you write a check, record the check number, the amount of the check, the date, and the name of the payee in a check register.
- A check register is a checkbook log in which an account holder records checking account transactions.
To deposit cash or a check in your account, fill out a deposit slip.
To deposit or cash a check requires an endorsement, or the signature of the payee on the back of the check.
Once a month, banks issue a bank statement, the bank’s record of all the transactions in a checking account.
- The statement includes a record of all withdrawals, deposits, interest, and fees.
- It also includes a record of all canceled checks, or checks that have been cashed.

Reconciling Your Account Records

Bank reconciliation is the process of seeing whether an account holder’s records agree with the bank’s records for the account.
- The first step to reconciling your account is to see whether the bank has processed all of your checks and deposits.
With the bank statement and your check register, you can identify your outstanding checks, or checks that have been written but have not yet been cashed.
If you have made any deposits or ATM withdrawals that have not been recorded on the bank statement, those transactions should be factored into the bank statement balance.
Once the balance on the bank statement and the balance in your check register are the same, you have reconciled your check register balance with the bank statement balance.