6. Banking Activities as Controls

What are some basic banks services that act as controls?

Banks safeguard cash and provide detailed records of cash transactions. They provide services and documents that help control cash, which is the focus of this section.

What is a bank account used for?

To deposit money for safekeeping and helps control withdrawals.

What must persons authorized to write checks on the account sign?

A signature card, which the bank uses to verify signatures.

What do firms often have multiple of?

Multiple bank accounts for different needs and for specific transactions such as payroll.

What does each bank deposit have?

A deposit ticket.

What does a deposit ticket do?

It lists items such as currency, coins, and checks deposited along with amounts. The bank gives the customer a receipt as proof of the deposit.

Review deposit ticket figure under basic bank services

What does the depositor use to withdraw money and explain what it is.

The depositor can use a check, which is a document telling the bank to pay a specified amount to a designated recipient.

How many parties does a check involve?

A check involves three parties: a maker who signs the check, a payee who is the recipient, and a bank (or payer) on which the check is drawn. The bank provides the depositor the checks.

Review figure 8.5 under basic bank services.

What are the five types of check fraud?

1. Forged signature

2. Forged endorsements

3. Counterfeit checks

4. Altered checks

5. Check kiting

Explain forged endorsements.

Stolen check that is endorsed and cashed by someone other than the payee.

Explain altered checks.

Legitimate check altered (such as changed payee or amount) to benefit perpetrator.

Explain check kiting.

Deposit check from one bank account (without sufficient funds) into a second bank account.

What does EFT stand for?

Electronics fund transfer.

Why are companies increasingly using ETF?

Its convenience and low cost.

What is usually done by ETF?

Payroll, rent, utilities, insurance, and interest payments are usually done by EFT. The bank statement lists cash withdrawals by EFT with the check and other deductions. Cash receipts by EFT are listed with deposits and other additions.

What are the 4 ways mobile banking offers internal control benefits?

1. 24/7 Access

2. Phone alerts

3. Mobile deposit

4. Mobile payment

Explain mobile deposit

Deposit checks immediately with a phone camera to reduce risk of theft or loss.

Explain mobile payment.

Make payments using services like Zelle, removing the need to risk the use of cash or checks.

How often does the bank send a bank statement?

Once a month usually.

What do all bank statements include?

1. Beginning-of-period account balance.

2. Withdrawals and other decreases to the account during the period.

3. Deposits and other increases to the account during the period.

4. End-of-period account balance.

What is good control related to bank statements?

Send a copy of the bank statement directly to a party without access to cash or recordkeeping.

Review bank statement figure 8.6

What are cancelled checks?

Checks the bank has paid and deducted from the customer's account. We say such checks have cleared the bank.

What are some common deductions on a bank statement?

1. bank service fees

2. checks deposited that are uncollectible

3. corrections of previous errors

4. withdrawals through automated teller machines (ATMs)

5. payments arranged in advance by a depositor.

What does increases to the depositor’s account include?

Includes amounts the bank collects on behalf of the depositor and the corrections of previous errors. Banks that pay interest on checking accounts credit interest earned to the depositor's account each period.