Objectives To learn to interpret and reconcile bank

Objectives • To learn to interpret and reconcile bank statements. • To learn to maintain financial records. • To learn to construct a balance sheet. • To evaluate personal and family financial documents. 2

Main Menu Financial Statements Recordkeeping Expert Tips & Advice Video Segment 3

Types of Bank Accounts • Include: − checking accounts − savings accounts − money market accounts − certificates of deposit 5

Checking Account • Is a deposit account held at a financial institution which allows withdrawals and deposits • Provides consumers with a basic account to deposit checks, make withdrawals and pay bills • Often comes with a debit card and check book • Is also known as debit account or personal account 6

Checking Accounts • Are usually free to open and use − some checking accounts have certain fees such as minimum balance fee and overdraft fee • Often offer online and mobile access • Provide different types of accounts such as joint checking accounts, reward checking accounts, student checking accounts and senior checking accounts 7

Savings Account • Is an interest-bearing deposit account held at a bank which provides a modest interest rate • Is used primarily for building savings • Is not the ideal type of account if frequently withdrawing money is required − federal rule Regulation D limits the number of withdrawals an individual can make to six per month 8

Savings Accounts • Are good tools for emergency funds or keeping money which does not need to be spent secure • Usually do not come with debit cards • Are not typically used to pay bills or buy things • Often structured to encourage saving and punish withdrawals 9

Money Market Account • Is a type of savings account which usually earns a higher amount of interest than a basic savings account • Requires a higher minimum balance than a regular savings account − minimum is often $5, 000 or more • Does not offer a fixed interest rate − interest rate is based on money markets 10

Money Market Accounts • Are a better option if an individual can afford to put in the minimum deposit − individuals will have a higher interest rate if they have more money in their accounts • Are also useful for people who keep high amounts of money in their checking account − individuals can write checks but their money still earns interest 11

Certificate of Deposit • Is a certificate issued by a bank to a person depositing money for a specified length of time • Typically earns interest at a higher rate than either a savings or checking account • Has a specified term length, which ranges anywhere from three months to five years • Does not provide money access during the term length 12

Certificates of Deposits • Are great tools to earn money because of its higher interest rate • Are ideal for people with long-term savings plans • Should not be considered if an individual needs the money before the end of the term − it is possible to withdraw the money early, but a steep penalty will occur 13

Bank Statement • Is a summary of financial transactions which have occurred over a given period on a bank account held by a person or business with a financial institution • Shows what money went in and out of a bank account • Can help account holders track finances, catch account mistakes and understand their spending habits on a regular basis 14

Bank Statements • Usually list the following information: − starting account balance − deposits, such as direct deposits, checks cashed, transfers received − withdrawals, such as purchases, transfers sent, ATM withdrawals − any interest the account earned − any fees charged by the bank − new account balance 15

Sample Bank Statement 16

Interpreting a Bank Statement • Involves checking the following items: − statement date • period of time covered by the statement − account summary • total of all additions and deletions from the account balance − account activities • detailed list of individual transactions − special messages • important message, news or similar information for the statement 17

Reconciling a Bank Statement • Involves matching up an individual’s record of deposits, withdrawals, interest and fees with the information on the bank statement • Can help catch any mistakes or even fraud • Can also help understand spending pattern and avoid overdraft fees • Is necessary to ensure the balance is correct 18

Reconciling a Bank Statement • Involves the following steps: − use a reconciliation form to start the process • there should be a reconciliation form on the back of the bank statement or an individual can create one to use − match each of the deposits in the records to those noted on the bank statement • if an individual has recorded a deposit which the bank has not received during the month, list this deposit as a reconciling item 19

Reconciling a Bank Statement • Involves the following steps: − compare the amount of each deposit recorded by the bank to the amount recorded by the account holder • it is possible the bank rejected a check or recorded the amount of a check differently − adjust the record if an error was made and contact the bank if they made the error 20

Reconciling a Bank Statement • Involves the following steps: − match all checks listed in the bank statement to the check register • place a checkmark next to each check in the register which matches the checks listed on the bank statement − go through the miscellaneous account debits and credits listed on the bank statement • verify they have been recorded in the check register 21

Reconciling a Bank Statement • Involves the following steps: − add or subtract all reconciling items from the bank’s ending cash balance and comparing the results to the individuals record of the ending cash balance • there could possibly be a reconciling item within the current period which has not yet been identified − staple the list of all reconciling item to the bank statement and properly store the statement 22

Maintaining Financial Records • Is an important part of managing personal finances − there may be times when a financial record or document needs to located quickly • Helps people keep track of their financial situation • Is essential to prepare tax returns in a shorter time with accuracy 24

Maintaining Financial Records • Involves: − keeping documents which are difficult to obtain, such as tax returns, legal contracts, insurance claims and proof of identity − keeping financial records and documents as long as necessary • for example, it is recommended to keep federal tax returns and supporting documents for a minimum of three years 25

Financial Documents • To store permanently − tax returns, mortgage contracts, other major financial records • To store three to seven years − supporting tax documentation, property appraisals, annual retirement and investment statements, receipts for major purchases and home improvements 26

Financial Documents • To store one year − bank statements, utility bills, auto and homeowner insurance policies • To store one month − deposits and withdrawal records, purchase and return receipts 27

Maintaining Financial Records • Involves: − discarding unneeded paper works • for example, when an individual receives this year’s auto insurance policy, they should discard the one from the previous year • review files at least every six months to keep the filing system on track 28

Maintaining Financial Records • Involves: − protecting sensitive information • invest in a good quality shredder to destroy unneeded documents • do not just throw them in the garbage, especially if they contain Social Security numbers, account numbers or other personal information 29

Maintaining Financial Records • Involves: − keeping files in a safe place • more important documents should be kept in a fire-resistant file cabinet, safe or safe-deposit box − creating a personal document locator • create a detailed list of where financial records have been stored 30

Maintaining Financial Records • Involves: − considering electronic storage for some financial records • save copies of online documents or scan documents and convert them to electronic form • make sure these files are secure in a personal computer 31

Personal Financial Statement • Is a financial statement which outlines a person’s financial position in a given point of time • Is also known as personal balance sheet or net worth statement • Typically includes general information about the individual, such as name and address, along with a breakdown of total assets and liabilities 32

Personal Financial Statements • Are most often used when an individual is applying for credit, such as loans or mortgage • Allow credit providers to gain perspective into the applicant’s financial situation in order to make an informed credit decision • Allow individuals to track how their financial health is improving or deteriorating • Are broken down into assets and liabilities 33

Assets • Are resources with economic values which an individual owns or controls • Include: − current assets • short term economic resources which are expected to be converted into cash within one year (e. g. , cash) − fixed assets • long-term resources which are not usually converted into cash within a short period of time (e. g. house) 34

Assets • Include: − financial investment • investment in the assets (e. g. stocks, corporate bonds) − intangible assets • resources which have no physical presence (e. g. patents, trademarks, copyrights) 35

Liabilities • Are a person’s financial debt or obligation • Include: − current liabilities • debts payable within one year (e. g. credit card balance, insurance premiums) − long-term liabilities • debts payable over more than one year (e. g. , mortgage, auto loan balances) 36

Net Worth • Involves finding the total of an individual’s current liabilities and subtracting them from the total current assets − for example, if an individual has total assets of $250, 000 and total liabilities of $170, 000, the net worth of the individual is $80, 000 Net Worth - Total Current Assets - Total Current Liabilities = Net Worth 37

Sample Financial Statement Assets Amount Liabilities Amount Checking Accounts 3, 000 Current Bills 1, 000 Saving Accounts 7, 000 Current portion of mortgages on real estate 1, 200 Cash 800 Current potion of loans 500 Certificates of Deposit 5, 000 Current portion of taxes 300 Securities 10, 000 Mortgage on real estate – 170, 000 net of current portion Real Estate 250, 000 Loans owned 10, 000 Vehicles 15, 000 Taxed owned 3, 000 Retirement Accounts 13, 000 Notes co-signed, etc. 0 Other Assets 700 Other Liabilities 900 Total Assets 304, 500 Total Liabilities 186, 900 Net Worth = Total Assets – Total Liabilities = $117, 600 38

Documents • Which individuals should keep in their records include: − birth certificate − social security card − passport − naturalization documents/permanent resident card − will − power of attorney (personal) − ID/driver’s license − retirement accounts (401 K, IRA) − current military ID/Military discharge 39

Documents • Which individuals should keep in their records include: − recent pay stubs − professional appraisals of personal property − reward accounts (e. g. , frequent flyer programs, hotel rewards) − student loan − health insurance card − record of immunizations/allergies − list of medications − disabilities documentation − dental records 40

Documents • Which families should keep in their records include: − marriage license − divorce papers − mortgage or real estate deeds of trust − vehicle registration/ownership papers − previous year’s tax returns − property tax statement − bank/credit union statements − credit/debit card statements − investment accounts 41

Financial Documents • Which families should keep in their records include: − government benefits (e. g. , social security, temporary assistance for needy families) − child support income − mortgage statement − lease − utility bills (electric, water, gas) − child support payments − elder care facilities 42

Teacher Instructions: Show the Expert Tips & Advice video segment 43

References • http: //echeck. org/ultimate-guide-to-the-different-types-of-bankaccounts/ • http: //echeck. org/common-checking-account-fees-you-should-avoid/ • http: //forums. huaren. us/showtopic. aspx? boardid=303&topicid=12228 55 • http: //www. investinganswers. com/dictionary/income-statement • https: //twocents. lifehacker. com/a-basic-guide-to-the-different-types-of -bank-accounts-1620905545 • https: //www. nerdwallet. com/blog/bankingbasics/understanding-bank-statement/ • https: //handsonbanking. org/adults/basics-banking-services/usingmanaging-accounts/how-to-read-your-statement/ • http: //smallbusiness. chron. com/understand-bank-statement 3570. html 44

References • https: //www. accountingtools. com/articles/how-to-reconcile-a-bankstatement. html • https: //www. cnbank. com/Your_Bank/Education_and_Advice/CNBU_ Articles/Maintaining_Your_Financial_Records__The_Importance_of_ Being_Organized/ • http: //www. dummies. com/personal-financetaxes/how-to-organize-your-financial-records/ • https: //bettermoneyhabits. bankofamerica. com/en/privacysecurity/how-long-to-keep-documents-before-shredding • https: //www. investopedia. com/terms/p/personal-financialstatement. asp • https: //www. investopedia. com/terms/a/asset. asp • https: //www. investopedia. com/terms/l/liability. asp • https: //www. walthall. com/wp-content/uploads/2013/12/personalbalance-sheet. pdf • https: //www. fdic. gov/news/conferences/affordable/hcachecklist. pdf 45

Acknowledgements Assistant Brand Manager Caroline Huang-Loggains Brand Manager Amy Hogan Collaborator Vickie L. Hampton Ph. D. , CFP® Professor, Department Chair Texas Tech University Production Coordinator Erin Metzler Director of Brand Management Megan O’Quinn Videography/Post Production Holley Baker, Jake Saye V. P. of Brand Management Clayton Franklin Quality Control Director Executive Producer © MMXIX Angela Dehls Gordon W. Davis, Ph. D. CEV Multimedia, Ltd. 46