FABM 2 Bank Accounts PDF

FABM 2 THE BANK ACCOUNT Presentation by GROUP 3 Table Of Contents FABM 2 1. identify the types of bank accounts normally maintained by a business; 2. differentiate a savings account from a checking account; 3. enumerate ways that transactional ba...

FABM 2 THE BANK ACCOUNT Presentation by GROUP 3 Table Of Contents FABM 2 1. identify the types of bank accounts normally maintained by a business; 2. differentiate a savings account from a checking account; 3. enumerate ways that transactional bank accounts facilitate payments; 4. differentiate bank accounts held for transactional and investment purposes; 5. understand income from time deposits and unit investment trust funds; 6. prepare bank deposit and withdrawal slips; Table Of Contents FABM 2 7. identify and prepare checks; 8. identify and understand the contents of a bank statement; 9. describe the nature of a bank reconciliation statement; 10. identify common reconciling items and describe each one of them; 11. analyze the effects of the identified reconciling item; and 12. prepare a bank reconciliation statement.  FABM 2 Types of Bank Accounts Savings Account Checking Account Time Deposits Other Investment Accounts (UITF - Unit Investment Trust Funds) SAVINGS ACCOUNT A savings account is the simplest type of bank account where businesses or individuals deposit money for safekeeping. Purpose: To store money securely while earning minimal interest. It has a minimum balance requirement to avoid fees. INTEREST Typically earns minimal interest on the balance. Some accounts are PASSBOOK linked with a passbook, ACCOUNTS a booklet that records all transactions. ATM CARDS Many accounts come with ATM cards for easy access to funds. DEBIT CARD Some ATM cards also ACCESS function like debit cards for payments in stores. Allows online access to INTERNET accounts for viewing BANKING statements and making payments. CHECKING ACCOUNT A checking account is a bank account that allows the depositor to easily access their funds through withdrawals, deposits, and other transactions. Key Feature: Unlike a savings account, a checking account allows the depositor to issue checks to pay for goods and services.  A key feature allowing ISSUING depositors to pay large CHECKS sums using a check instead of carrying cash. Checks can be SECURITY OF (restricting payment to a crossed PAYMENTS bank account) to prevent misuse. NO INTEREST OR Checking accounts generally LOW INTEREST rarely earn interest due to the fast turnover of transactions. FAST High volume of transactions, TRANSACTION leading to low or no interest TURNOVER earned. Some banks offer hybrid HYBRID accounts, which combine ACCOUNTS the features of both checking and savings accounts.  DIFFERENCE OF SAVINGS AND CHECKING ACCOUNT Feature SAVINGS ACCOUNT CHECKING ACCOUNT To store business funds for future To handle daily business transactions like PURPOSE growth, reserve capital, or emergency needs paying suppliers, employees, and collecting payments Typically no interest or very May earn interest on the balance, helping INTEREST low interest, but sometimes offers interest-bearing businesses grow savings passively options for higher balances ACCESS Limited access; used for long-term Easy and immediate access to funds for routine TO FUNDS savings, not daily operations transactions (via checks, cards, and online transfers) TRANSACTION Limited withdrawals, making it suitable for Unlimited transactions, designed to handle LIMITS reserves that don't require frequent use frequent deposits, withdrawals, and payments May have fees if May have monthly fees, per-transaction fees, or FEES minimum balance requirements are not met or if minimum balance requirements, especially for business withdrawals exceed limits accounts Used for setting aside emergency funds, saving for Used for operational expenses, payroll, supplier USAGE expansion, or as a cash reserve payments, client collections, etc.  Time Deposit FABM 2 FABM 2 A time deposit is an interest-bearing bank account that has a date of maturity, and are evidenced by certificates of time deposits (CTD). The depositor agrees not to withdraw the funds over the contracted period in exchange for fixed interest rates that are higher than deposit rates. 01 02 PROS FIXED INTEREST RATE LONGER THE TERM, THE HIGHER THE INTEREST RATE 01 02 CONS DEPOSIT RETURNS ARE INVESTORS MAY MISS A BETTER OPPORTUNITY IF LOWER INTEREST RATES RISE.  FABM 2 Other Investment Accounts FABM 2 UNIT INVESTMENT TRUST FUNDS ( UITF ) Banks also offer unit investment trust funds (UITF). These are the pool of investments funded by various investors. These funds are managed by professional fund managers and are invested in various financial instruments such as money market securities, bonds, and equities, which are normally available to bigger investors only. Bank Forms FABM 2 FABM 2 There is a corresponding bank form for almost every transaction with the bank. Take for example the opening of a bank account. The forms to be filled and signed are numerous. There are account opening forms, signature cards, investor suitability forms, and indemnity forms.  Bank Deposit/Deposit Slip FABM 2 This documents the deposit transactions. It is a bank form filled out by the depositor. The depositor will indicate the account name as well as the account number. Cash Deposit Slip Check Deposit Slip The depositor must indicate The depositor must the amount of cash, indicate the amount of the denomination, and the pieces check, check number, and of denomination. issuing bank. Note The depositor may or may not be the account holder. A bank deposit slip is validated by the teller that accepts the deposit. LuckyBank LuckyBank  FABM 2 Illustrative Example: ABC Company made two deposits on July 18, 20X1 in its Lucky Bank Checking or Current Account with an account number 000123455589. One was a cash deposit for P55,000 composed of 35 pieces of P1,000 bill and 40 pieces of P500 bill. The second deposit was for P580,761.82 composed of two checks issued by BDO and Metrobank.  LuckyBank 0 0 0 1 2 3 4 5 5 5 8 9 Date: ABC Company July 18, 20X1 / Current Account / Peso Savings Account US Dollar ₱ 1,000 35 35,000 ₱ 500 40 20,000 55,000  LuckyBank 0 0 0 1 2 3 4 5 5 5 8 9 Date: ABC Company July 18, 20X1 / Local Out of Town Regional On US Manager’s Check (MC) BDO-Katipunan 0000193847 234,987.56 Metrobank-Commonwealth 000096432 345,774.26 580,761.82  Withdrawal Slip FABM 2 This documents the Only the account holder withdrawal from a passbook account. It is a bank form filled may withdraw from out by the account holder. The his/her account. account holder indicates the Therefore, the signature account name as well as the of the account holder is account number from which required in the account he/she wants to make a withdrawal. withdrawal slip. Note Upon the release of the funds, the bank officer or the teller will again require the account holder to sign on the “received by” portion of the withdrawal slip. A withdrawal slip is used only for a passbook savings account. Passbook Account Information Account name Account number Amount to be withdrawn To be filled out only if the withdrawal will be made by a representative of the depositor. Denomination of cash given to the account holder (this is to be filled out by the teller), total cash should be equal to the amount to be withdrawn. Account holder’s signature to acknowledge receipt of cash. Teller’s machine validation means the transaction is entered in the bank’s system.  FABM 2 Illustrative Example: ABC Company made a withdrawal of P105,055 from its savings account (SA#000123455592) at Lucky Bank. Filled-out by the account holder Filled-out by the bank teller and bank officers Signed by the signatories of account holder Bank Check FABM 2 It is a bank form filled out by the account holder that instructs the bank to pay the designated payee indicated on the check on or after the date specified on the check. STALE CHECK POST-DATED CHECK A cheque that is more than 6 months A cheque with a future date Definition old from the date on the cheque. written on it. Acceptable for payment on the Acceptability Not acceptable for payment date written on the cheque Legal Standing May be considered legally invalid Legally valid May require reissuance of the Reissuance Does not require reissuance cheque  Bank Check FABM 2 Note Bank check is a widely accepted form of payment. A check should be covered by sufficient balance in the issuer’s checking account. Batas Pambansa Blg. (BP) 22 or the Bouncing Checks Law. Compared to bills and coins, a bank check is a safer form of payment. Bank procedures give protection to checks. Banks require proof of identification before a check can be cashed out. A stop order payment can be given for a lost or stolen check.  FABM 2 Kinds of Bank Checks Personal Check Corporate Check Manager’s Check or MC Personal Check FABM 2 are issued by persons, a single depositor, or holders of joint accounts. may have two signatories if the issuing account is a joint account. Corporate Check FABM 2 is issued by a corporation. generally seen as more secure than a personal check. Manager’s Check or MC FABM 2 It is issued by the bank on behalf of the client. the most secure among the three because it is backed up by the guarantee of the issuing bank. Bank Statement FABM 2 A bank statement is a detailed transaction history of the account over a reporting period. It is a report prepared by the bank for those accounts that do not have passbooks. Most big banks provide account holders access to their statements through online banking facilities.  FABM 2 Purposes Of Bank Statement To provide a clear report that shows transaction history over a certain period. To promote transparency. By providing a clear and comprehensive record of activities, they help build trust between the bank and the account holder. In addition, most big banks provide account holders access to their statements through online banking facilities, which allows account holders to view their transaction history 24/7 and on a real-time basis. Cancelled Checks FABM 2 Cancelled checks are checks that have been processed by the bank and marked as "paid" or "cleared." Once a check is cashed or deposited, the bank stamps or marks it as cancelled to show that the payment has been completed and the funds have been withdrawn from the account. These checks are often returned to the account holder as proof of payment. Auto Debit Transactions FABM 2 It is from the contractual agreement between the bank, the account holder, and the supplier, that the supplier can claim payment from the bank and the bank will automatically charge it from the bank account of the account holder.It is from the contractual agreement between the bank, the account holder, and the supplier, that the supplier can claim payment from the bank and the bank will automatically charge it from the bank account of the account holder. Auto Credit Facilities FABM 2 It is for the account holder, wherein they can designate their savings or checking account as a settlement account for his investment transaction with the bank. Non-Sufficient Funds FABM 2 A Non-Sufficient Funds (NSF) check occurs when someone writes a check, but there isn’t enough money in their bank account to cover the amount of the check. Bank Fees FABM 2 Bank Reconciliation FABM 2 Bank Reconciliation is a financial procedure in which records of a company's transactions are compared to its bank statements to ensure consistency and accuracy.  FABM 2 Purpose of Bank Reconciliation To determine whether the cash record agrees with the inventory of cash in the bank. BANK RECONCILIATION STATEMENT FABM2 is a statement which brings into agreement the cash balance per book and cash balance per bank. FORMAT: Unadjusted to adjusted format Different kinds of Reconciling items FABM2 1. TIMING DIFFERENCES - occur when a transaction is recorded by one party (either the bank or the company) before the other due to a cut-off date.  TWO PARTS OF TIMING DIFFERENCES I. Bank reconciling items or Reconciling items on the side of the bank. Outstanding checks - Checks recorded in books but not yet in the bank. TWO PARTS OF TIMING DIFFERENCES Deposits in Transit- Deposits recorded in books but not yet by the bank. Has Two Items: a. Amount that is deposited in the bank after the cut-off time - is the full amount of the deposit that hasn’t yet been processed by the bank on the same day. b. Amount that is received by the company but not yet deposited in the bank- This means the cash or checks are recorded in the company’s books as cash receipts but do not yet appear in the bank balance because they haven’t been deposited.  TWO PARTS OF TIMING DIFFERENCES II. Book reconciling items or Reconciling items on the side of the book. Collection received by the bank -This means the cash or checks are recorded in the company’s books as cash receipts but do not yet appear in the bank balance because they haven’t been deposited. Debit memo - Deductions by the banks, like service fees. Credit memo - Items added by the bank, like interest income. Non-sufficient funds (NSF) - Checks deposited but bounced due to insufficient funds. Different kinds of Reconciling items 2.ERROR - refer to mistakes made either by the bank or by the company in recording transactions related to the bank account. During bank reconciliation, these errors are identified and corrected to ensure that the bank balance and book balance align accurately. PREPARING RECONCILIATION STATEMENT PREPARING RECONCILIATION STATEMENT