Checking Accounts (Account 1000) is the account that you set up in the Chart of Accounts and the General Ledger as your operating account. This is the bank account that will receive deposits for incoming revenue and disburse all the expenses for your business.

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The operating account should be opened at a bank that meets all of your business requirements. These would include but not be limited to the following: convenient location, convenient banking hours, personal attention to your questions and business needs, reasonable bank fees:

  • Convenient location. You will spend a fair amount of time going to and from the bank, so choose a bank that is close to your business location. You don’t want to spend precious time driving across town to do your banking.
  • Convenient banking hours. The same holds true for the business hours of your bank. If you are operating a business for long hours Monday through Friday, perhaps you need a bank with branches that are open on Saturdays. Although electronic banking makes this less of a consideration today, extra fees are associated with this convenience.
  • Personal attention to your questions and business needs. If you have access to the Internet, you may find that banks in your area offer online services. A number of banks want you to do everything over the phone. When you need help, you are expected to choose your options from an electronically recorded menu. Be sure that the bank you deal with gives you the phone number of the banking office that you use. When you have a problem or a question about your operating account, you should be able to talk to a person who is familiar with you and your business.
  • Reasonable bank fees. Some banks charge you for every check and deposit. Others have set monthly fees. Still others may offer free or reduced-fee checking accounts if you sign up for additional banking services, such as credit lines and savings accounts.

 

Before you open the operating account for your business, shop around and find the bank that best suits all your needs. Your relationship with the bank and your personal banker is an important part of controlling the bank accounts. As an accountant who may be coming into an existing business, you may not have a choice of banks. In that case, make a personal visit to the bank and acquaint yourself with its procedures and services.

 

Managing Check for Operating Accounts

Once you’ve found the right bank for your business, you will be asked to choose checks for your account. Always order business voucher checks, these are the checks that come in a three-ring binder with a check stub that stays in the book after you’ve written the check and removed it. There are usually three checks to a page. This type of checkbook will make it easier to monitor and organize your accounting information. The checkbook for your operating account is a vital component of your accounting system because all cash transactions go through this account. Thus, it must be handled smartly and efficiently.

For your information: The voucher or check stub portion in the checkbook provides spaces to record deposits. Always note the date and amount of the deposit as soon as it is completed.

In certain types of businesses, such as law firms and property management companies, it is important to keep records of each check received for deposit. Any business that accepts client funds for future use or disbursement is considered to hold the client’s funds in trust and must keep documentation of said funds. The easiest way to do this is to make a photocopy of the client’s check before taking the deposit to the bank. This provides the best record of the receipt.

When you take the deposit to the bank, always check the receipt that the teller gives you. Make sure that the amount and your account number are accurately noted on the receipt. Then keep the deposit receipt in your files. Although it doesn’t happen often, it is possible for a bank to make an error. Deposits can be lost or posted to the wrong account. The receipt proves that the deposit belongs to your business.

When you write a check, use the spaces provided for noting all the information that you will need later to post that disbursement to the General Ledger. On the check stub, you should record the name of the payee, the amount, and a brief explanation of what invoice or service you are paying for. On the check itself, always include your account number or invoice number so that the vendor who is receiving the payment can record the payment to the correct account.

 

You Should Take Record Checks and Deposits

The few extra minutes that it takes to record checks and deposits properly in the checkbook will save you lots of extra minutes later if there is a question about a payment or receipt.

The other reason you should take care to record things carefully in the checkbook is that the information will help you keep a running total of the balance in the account. You will receive a bank statement only once a month, and in the interim you will need to know the status of your bank account. This is especially important for a new business that has not yet established a predictable cash flow.

 

Online and Electronic Banking

Most banks have electronic or online systems that you can access to check your bank balance. The systems will also supply information on deposits and tell you whether a particular check has cleared your account. You can use these automated banking features any time you have questions about your account that don’t require a conversation with a bank employee.

Using this system to check the balance in your account is fine as long as you realize how it really works. The system does not know what checks you have written that have not yet cleared your account. Only you know how many checks are outstanding, so when you get the balance from the automated systems, you must then deduct the checks in your checkbook that are outstanding or that have not yet cleared the bank.

You also need to be aware that the speed of electronics means that checks clear your account quickly. Don’t make the mistake of thinking that you can write checks today and deposit the money to cover them in a few days. Bank fees for returned checks are hefty—never write a check and mail it unless you have the funds in the bank to cover it.

Keeping your operating account in balance and in good order is imperative. Each time you complete a page in your check register, you should add the deposits and subtract the checks written; then note the balance on the bottom of the page in the space provided for it. That balance should be carried forward to the top of the next page in the check register. Even if you are using a computerized system, this procedure should be done manually in the check register. At the end of the month, you will be crosschecking the balance in the checkbook against the balance in the General Ledger.

 

Managing Supplies For The Operating Accounts

The bank will provide you with all the supplies you need for the operating account. This includes the checkbook, deposit slips, and a stamp for endorsing customers’ checks for deposit into your account. If you don’t have an endorser stamp, you can endorse the check by writing your business name on the back of the customer’s check with the number of the bank account that you are depositing it into.

Additional supplies that you will need to organize your accounting system should be purchased and put into use as soon as possible. You will need some or all of the following items:

  • Ledger paper
  • File folders, regular or legal size
  • Three-ring notebook or binder
  • File cabinets/boxes
  • Alphabetical expanding files

 

All of these supplies can be purchased at an office supply outlet or a variety store that carries stationery products.

Four-column ledger paper can be used for most accounting tasks. This paper has four columns for recording numbers, as well as a date column and a description column. It can also be used to list your Chart of Accounts. A separate page should be set up for each account to make up the General Ledger pages for balances and postings. This same paper can be used to write up depreciation schedules and General Journal Entries.

Other kinds of ledger paper with more or fewer columns can be purchased in pads of 50 sheets or more. If you prefer longer sheets or wider sheets, you can use them instead. The important thing is that you establish some type of tangible, written record of your accounting transactions.

Depending on the type of business you are working in, you can use regular file folders, standard 8.5 × 11 folders, or longer legal-size folders, at 8.5 × 14 inches. Whatever size accommodates your ledger paper or other files is fine. You may or may not want to use labels to put on the files—that is up to you.

Regardless, a file folder should be set up and designated to hold your Chart of Accounts, your General Ledger pages, Depreciation schedules or other schedules, General Journal Entries, and Financial Statements.

In place of file folders, you might want to use three-ring notebooks or binders. The ledger pads are already punched with three holes, so they can easily be inserted into a notebook or binder, if desired. Using a notebook or binder is actually the best choice to hold your Chart of Accounts and General Ledger sheets. You can use notebook dividers to separate Balance Sheet Accounts from Profit and Loss Statement accounts.