Checking Account Simulations ADVANTAGES AND DISADVANTAGES OF A CHECKING ACCOUNT Even though you have already opened an account, you need to be aware of the advantages and the disadvantages of using a checking account. This awareness will help you decide when to write a check or when to use cash. Some advantages of a checking account to be considered are: 1. You do not need to carry large amounts of money. 2. Your check is your receipt for the purchases you have made. 3. Your check register provides you with a record of how you are spending your money. 4. You can send checks through the mail and not worry about them being stolen. 5. Your money is safe when it's deposited in a bank. Some disadvantages of using a checking account are: 1. It is necessary to carry identification with you to use checks. 2. In spite of having proper identification, some businesses refuse to cash checks. 3. Checking accounts cost money to use. 4. It's necessary to keep accurate records. 5. You must remember to carry your checks with you. CHECKING CYCLE It is important for you to know how the check cycle works in order to use your checking account properly. When you write a check to a store for your purchase, your check is taken along with all of the other checks the store has received during that day to the bank where the store has its account. At the bank, your check is sorted from all of the other checks and is sent from the store's bank to your bank. Your bank pays the store's bank the amount of money you have written on your check for your purchases. Your bank subtracts the amount of your check from your account. At the end of the month you receive a statement showing the check number and the amount of the check you have written, as well as your current balance. When a check begins its cycle, it is important for you to be sure you have deposited enough money in your account to cover the amount of the checks you have written. If your deposit is sufficient, your check will clear. However, if you have insufficient funds, your check will bounce and will be returned to the store to which it was written. In this case, your account will be charged a fee. Make sure that your balance keeps you in the black and not in the red. Page 1 of 5
ANATOMY OF A CHECK Vocabulary ABA Number The number given to your bank by the American Banker's Association. Payee Name of person or business being paid. Check Register Area in your check book reflecting information of written checks. FACE OF A CHECK: 1. Your name, address and telephone number identify your check. 2. Your check number helps you' keep track of the checks you have written. You can organize your checks numerically. 3. The ABA number is the number given to your bank by the American Banker's Association to help the Federal Reserve process your check to the correct bank. 4. Your account number. 5. The name and address of your bank. 6. Number of check Understanding the face of a check helps you better understand the check cycle and enables you to check your bank's accuracy in cashing your checks. When writing a check, you can avoid making careless mistakes by using a set procedure. Be sure to follow the steps suggested in this process to write checks right. CHECK WRITING PROCEDURE 1. Always use non-erasable ink so your checks can not be altered in any way. 2. Number your checks to facilitate keeping your records accurate. (Most checks are pre-numbered) 3. Date your check with today's date. 4. Write in the name of the person or business being paid after the words "Pay to the order of:" 5. Beside the dollar sign, fill in the amount of the check in numbers. 6. On the line designated by the word Dollars, write in the amount of the check in words. Dollars are written in words (for example, "ten dollars") and cents are written in numbers as fractions (for example, "16/100" for 16 cents). This information should cover the entire line to ensure that the check will not be altered. 7. Identify the purpose of your check by filling out the line following the word "Memo" or "For". 8. Sign your check as you did on your signature card. 9. Reflect the information found on your check by filling out your check stub or register. Subtract the amount of each check written and the bank's service fee to maintain your correct balance. Add any deposits. 10. Double check your computation to eliminate errors. Page 2 of 5
Check Your Learning CHECK WRITING QUESTIONS I. Circle the letters of all the statements that are correct. 1. These are the advantages of having a checking account: a. You have a record of how you are spending your money. b. You have to carry large amounts of currency. c. You can send checks safely in the mail. d. Your money is safe if it's deposited in a bank. 2. These are the disadvantages of having a checking account: a. You never need to carry identification with you. b. Businesses sometimes refuse to cash checks even with proper identification. c. Checking accounts are expensive. d. It is necessary to fill in your check register. 3. In a check cycle, the following steps take place: a. A check is sent to your bank at the end of the day. b. The store's bank sends your check to your bank. c. Your bank subtracts the amount of your check from your account. d. At the end of the month, you receive a statement showing the checks you have written that have cleared. 4. It is important for you to have deposited more money in your account than you write checks for: a. In order that the check you write will be covered. b. In order for your checks to clear. c. In order that your checks won't bounce. d. In order that your account will be overdrawn. II. Arrange the check cycle in its proper order beginning with your check. Your statement Your Store Your Bank Your Store's Bank 1. 2. 3. 4. III. Match the definition with the correct term. Currency Statement Red Receipt Clear 1. A slip of paper that serves as proof of payment. 2. Paper money. 3. A negative balance. 4. A check that is honored and cashed by your bank. 5. A record of your banking activity issued each month. Page 3 of 5
IV. Fill in the blanks from the following list of items to correctly complete the statement. overdrawn cash cover bounce check cycle black balance red 1. The route a check takes to be cashed is called a. 2. To a check, you must have adequate funds in your account. 3. If your balance is insufficient, your check will. 4. If your account is, the bank will charge you a fee. 5. Your is the amount of money left in your account after the amount of your checks have been subtracted. 6. If your balance is positive, your account is said to be in the. 7. If your balance is negative, your account is said to be in the. 8. If a store refuses to honor your check, you will have to use or a credit card to pay for your purchase. V. Fill in the blank with the word that completes the sentence correctly. Restrictive Second Party Standard Corrective 1. A endorsement should be written in the presence of a teller. 2. In a endorsement, you write "Pay to the Order Of' and the person's name who is to receive the money. 3. In a endorsement, you write the words "For Deposit Only." 4. When your name has been spelled incorrectly, you use a endorsement. Page 4 of 5
Practice Exercise 1 You have just completed your first month as a new employee of Safe Industry and have received your first paycheck for $1,350.00. Use this amount as your opening balance. Your account is now in service. Pay the eight bills listed below by using the checks supplied to you in your check packet. (In case you make a mistake, you may void the check, and rewrite the check by using one of the extras). Fill out your check register by recording the date and check number in the correct columns with a description of the check. Write the current balance after deducting each check from the previous balance. You will not deduct the amount of the service fees "until you have received your first reconciliation statement. If you become confused, review the instructions for writing checks. DATE CHECK # TO FOR AMOUNT 3/12 202 WOODLAND SPRINGS APARTMENTS RENT $765.00 3/12 203 VERIZON WIRELESS TELEPHONE $99.89 3/13 204 EXXON GASOLINE $56.80 3/14 205 ACME MARKET GROCERIES $54.55 3/20 206 SEARS FLAT SCREEN TV PAYMENT $95.00 3/21 207 KOHL'S CLOTHES $68.00 3/21 208 BURLINGTON FLORIST FLOWERS $30.75 3/27 209 RITE-AID TOILETRIES $11.16 Practice Exercise 2 *Write your ending balance here Let's assume that you have received your second paycheck (#216) for $1,350.00. Add this amount to your checking account. DATE CHECK # TO FOR AMOUNT 4/15 210 WOODLAND SPRINGS APARTMENTS RENT $765.00 4/15 211 VERIZON WIRELESS TELEPHONE $99.89 4/15 212 EXXON GASOLINE $42.50 4/15 213 ACME MARKET GROCERIES $56.87 4/15 214 DEPARTMENT OF TREASURY 20XX FEDERAL TAXES $82.00 4/16 215 SEARS FLAT SCREEN TV PAYMENT $95.00 4/18 216 THINGS REMEMBERED BIRTHDAY GIFT $21.65 4/21 217 RITE-AID TOILETRIES $8.25 Write your ending balance here Page 5 of 5