Chapter 28Chapter 28

Managing Your Checking Account and Other Financial Services

Processing Your ChecksProcessing Your Checks

• Clearing - Returning a check to the drawer’s bank to be

paid and charged to his or her checking account.

• Example - the next image illustrates the process which a check goes through, in order to be cleared, between to local parties.

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The ClearinghouseThe Clearinghouse

• Clearinghouse - A place where member banks exchange checks in

order to clear them.

• The method of clearing the checks through a clearinghouse is similar to that just discussed, except for the fact that the clearinghouses handle thousands of checks for many different banks.

• Automated Clearinghouse - transfers funds among banks using electronic payment entries.

Federal Reserve System - Check Clearing

Federal Reserve System - Check Clearing

• Federal Reserve - One of the main functions of the Federal

Reserve is clearing checks between banks in different cities.

This process is a little more complex due to the volume of checks being cleared.

Banks use a clearinghouse and their districts Federal Reserve Bank to settle their balances, while the Federal Reserve uses the Interdistrict Settlement Fund to settle their net amounts due among the banks in each of the 12 districts.

Your Bank StatementYour Bank Statement

• Banks Statement - A report sent by the bank to a depositor showing the

status of his or her account.

• Included in the Statement - Beginning Balance (beginning of month) Transactions made throughout month, involving the

account Service Charges Interest earned by the account Ending Balance (end of the month)

Examining Returned ChecksExamining Returned Checks

• Some banks will return the checks which have been paid to the drawer.• Cancelled Checks -

Each check that has been paid, gets cancelled by the bank. The banks do this by simply using a machine that stamps a cancellation number on the front or back of the check.

These can be used as evidence that payment was actually received, if one of the payments are in question.

Bank ReconciliationBank Reconciliation

• The bank statement gives you a copy of the transactions involving your account throughout the month. • It is necessary to bring this statement into

agreement with your check register or your check stubs.• Bank Reconciliation -

A statement showing how the checkbook balance and the bank statement were brought into agreement.

Finding DifferencesFinding Differences

• Outstanding Checks - Checks that have not been deducted from the

bank-statement balance.

• Forgetting to record a transaction Often the situation with EFTs

• Service Charges• Interest Earned• Or an error in recording

Calculating the Adjusted BalanceCalculating the

Adjusted Balance

• Possible Fixes - Subtracting the total of the outstanding

checks she had listed on the form, from the bank statement balance.

Subtracting service charges Adding interest earned Subtracting any forgotten EFTs Correcting any errors in recording

Selecting a Financial Institution

Selecting a Financial Institution

• Services Offered - Select the lowest cost Locate the best interest rate on your savings Find the lowest interest rate for loans

• Safety - FDIC - Federal Deposit Insurance Corporation

• Convenience - 24-hour banking services Branch offices near your home ATM locations

• Fees and Charges• Restrictions