Checking Account Simulation Understanding Checking Accounts
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
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 depository institutions Traditionally called banks
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
Characteristics
Funds are easily accessible through:
A check
Automated teller machine (ATM)
Debit card
Telephone
Internet
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
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
Used at the time of purchase as the form of payment
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
What is an ATM?
Automated teller machine (ATM)
Also called cash machines
Electronic computer terminals offering automated, computerized banking
Allows customers to perform transactions just as they would through a teller Deposits, cash withdrawals, account transfers, check
account balances
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
ATMs continued
Transactions at an ATM are automatically posted
to account
Immediately record all transactions into the
checkbook register
Good option for evenings or weekends when
financial institutions are closed
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
ATM Availability
Available most places around the U.S. giving
customers access to money when away from home
Can also be found worldwide
Found in a variety of places including:
Financial institutions
Supermarkets
Convenience stores
Shopping centers
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
PINs
Required at ATM as a safety measure so other
people cannot access the account with the only the
ATM card
Choose a PIN which is not easily identified
For example – phone number, birthday
Instead of requiring a PIN, some ATMs may read a
person’s face, fingerprint, or eye’s iris to confirm
identity
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
What is a Debit Card?
Looks like a credit card, but is connected to the
cardholder’s checking account for transactions
Money is automatically withdrawn from account
when transaction occurs
Prevents overdrafts
Transaction cannot be completed without sufficient
funds
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
Debit Cards continued
Some are dual function cards
One card performs both functions for
ATMs and debit cards
Clarify whether or not the card is
an ATM card, a debit card, or both
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
Using a Debit Card
To make a purchase Debit card is swiped like a credit card
Cardholder signs a printed receipt
Record transactions immediately into check register
Most can be used at retail establishments accepting major credit cards Many have the Visa or MasterCard logo
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
Debit Cards continued
Convenient
Small
Can be used like a credit card
Allows a person to carry less cash
Does not allow overspending
Can lose track of balance if
transactions are not immediately
written down
Opens checking account up to
credit card fraud
If lost, anyone can use it
Someone else can gain access to
account if card is found and PIN is
learned
Pros Cons
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
Regular Checking
No monthly charge if minimum balance is
maintained
No interest is given
Unlimited check writing
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
Free Checking
No charges or fees for using the account
No minimum balance required
Unlimited check writing
Usually for a specific group:
Students
Seniors
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
Signature Card example
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
Ordering continued
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
Single Duplicate (carbon copy)
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
Blank Endorsement
Receiver of the check signs
his/her name
Anyone can cash or deposit
the check after has been
signed
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
Restrictive Endorsement
More secure than blank
endorsement
Receiver writes “for
deposit only” above
his/her signature
Allows the check to only be
deposited
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
Completing a Deposit
Slip
Date
The date the deposit is being made
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
Completing a Deposit
Slip
Signature Line
Sign this line to receive cash back
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
Completing a Deposit
Slip
Cash
The total amount of cash being deposited
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1.7.1.G1
Completing a Deposit
Slip
Checks
List each check individually
Identify each check on the deposit slip by abbreviating the name
of the check writer
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
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1.7.1.G1
Completing a Deposit
Slip
Total from Other Side
The total amount from all checks listed on the back
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1.7.1.G1
Completing a Deposit
Slip
Subtotal
The total amount of cash and checks
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1.7.1.G1
Completing a Deposit
Slip
Less Cash Received
The amount of cash back being received
This amount is not deposited into account
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1.7.1.G1
Completing a Deposit
Slip
Net Deposit
The amount being deposited into the account
To calculate the amount, subtract the cash received from the subtotal
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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)
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
Writing a Check
Check Number
Numbers used to identify checks
Printed chronologically
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1.7.1.G1
Writing a Check
Date
The date the check is written
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
Writing a Check
Pay to the Order of
The name of the person or business to whom the check is
being written
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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’
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
Writing a Check
Signature
The account holder’s signature agreeing to the transaction
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1.7.1.G1
Writing a Check
Identification Numbers First - routing numbers to identify the account’s financial institution
Second - account number
Third - check number
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1.7.1.G1
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
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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!
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
Check Register
Date
The date the check was written or transaction was made
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1.7.1.G1
Check Register
Number
The number of the written check; if a debit card or ATM
was used, write DC or ATM
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1.7.1.G1
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
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1.7.1.G1
Check Register
Payment/Debit(-)
Amount of the transaction
Deducted from the balance
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1.7.1.G1
Check Register
Deposit/Credit(+)
Amount of the transaction
Added to the balance
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1.7.1.G1
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
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1.7.1.G1
Check Register
Fee (if any)
Any extra fees charged to the account
Listed on the bank statement
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1.7.1.G1
Check Register
Balance The running total of the checking account
Calculated by adding or subtracting each transaction
Keep this updated
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1.7.1.G1
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)
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1.7.1.G1
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
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
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1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
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
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
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!
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
CHECKBOOK RECONCILIATION
FORM
The reconciliation form is used for balancing your
check register, or checkbook, and your checking
account.
This form is often found on the back of your
monthly bank statement. .
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
Reconciliation Form
Checks Outstanding Step 2
Check number Amount
Total
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
1. Using your bank statement, update your check
register with any transactions that you did not
previously record, including interest earned, service
charges, etc.
2. In your check register (checkbook), mark with a
check all checks paid, and deposits credited. Then
using the table on below, list all outstanding checks
(no check mark in your check register -- not yet
charged to your account):
RECONCILIATION STEPS
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
3. Using the second table below, list all deposits or other credits
recorded in your register that are not shown on this statement:
Deposits Outstanding
Date Amount
Total
© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account Simulation
Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman
1.7.1.G1
4. Enter ending balance on your bank statement:
5. Enter TOTAL Checks Outstanding
6. SUBTRACT (5 minus 6)
7. Enter TOTAL Deposits Outstanding
8. ADD. (7 + 8) This number should match the
ending balance in your check register. If not, then
your account does not balance and there is an error.