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What is a checking account?

Author:
Harold Averkamp, CPA, MBA

Definition of Checking Account

A checking account is a bank account in which a company deposits money and can subsequently withdraw the money by writing a check, using a debit card, arranging for electronic transfers, etc. Except for the uncollected funds associated with recently deposited checks from customers, the money in a checking account is available on demand. (This is why banks refer to the amounts in their customers’ checking accounts as demand deposits.)

The balances in checking accounts are considered to be money and are reported on the company’s balance sheet as part of the current asset cash. (A bank’s balance sheet lists the total amount of its customers’ checking account balances as a current liability.)

As part of its internal controls, a company should reconcile the checking account balance in its general ledger account with the balance in the bank’s records. This process is known as the bank reconciliation.

Examples of Checking Accounts

Companies often have several checking accounts. For example, it may have a separate checking account for each of the following:

  • Payroll checks or direct deposits for employees’ pay
  • Customer remittances of amounts due to the company
  • Paying vendors and others

Checking accounts must be authorized by an officer of the business and will specify the employees that are authorized check signers.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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