Definition: A small document (usually about the size of a dollar bill) that a bank account holder uses to pay money from her account to another.
Example: James has an opportunity to go on a school field trip. The cost will be $25 per person. As instructed by the flyer he brought home describing the trip, James’ mom writes a check by filling in today’s date, making it payable to Syosset High School Student Activity Fund, writing in the amount of $25.00, spelling out Twenty Five Dollars and 00 Cents, and then signing it.
As she hands it to James to bring to school, her last step is to record the check number, date, payee, and amount in the log she keeps with her checks called the checkbook register.
Investeach explains: Printed on every check are the unique numbers assigned to the person’s bank and to the account itself. Each check also contains a unique check number. To be filled in are:
* the date
* the person to pay (formally known as the payee)
* an optional description to help the person remember what the check is paying for
* the dollar amount to be paid (written numerically and spelled out in words)
* the signature of the account holder (formally known as the drawer or maker)
A check is formally known as a draft, which is a written order by a person (the account holder) for someone else (the bank) to pay another person. A draft is payable on demand by the bank whenever the person to whom the check is written visits the bank and hands it over. Because of this, the maker should not put a future date on a check! In practice, however, people sometimes do this to make sure the payee waits until a certain date to show up at the drawer’s bank to be paid.
Just because a person writes and delivers a check doesn’t mean that the payee is going to run to the maker’s bank and try to collect payment for it. In fact, checks can be misplaced briefly or for a long enough period of time that they actually expire (which is usually six months after they’re written). In the case of a misplaced or lost check, the payee can ask the drawer to write a replacement check. The drawer can protect herself by telling her bank not to pay the original check if it is ever presented. This called a stop payment order. Because the bank will charge for this, the maker may want to write a replacement check in an amount that deducts the stop payment fee.
Above, we’ve talked about a check that has not yet been presented for payment. This is known as an undeposited check. The opposite, a check that has been presented and paid, which has worked its way through the system, is known as a cleared check. It is these that will show up on the account holder’s bank statement.
Riddle me this:
1. How is each check uniquely identified?
2. What are the formal names we give to the person writing the check?
3. What is the formal name of the person to be paid?
4. What do we do to ensure that the account holder’s bank gets the amount of the check correct?
5. What is the formal name of the check itself?
6. How long must the person paid with a check have to wait before presenting the check to the drawer’s bank?
7. After how long does a check expire, giving the bank the ability to refuse to pay it?
8. What can the recipient of a check do if he or she misplaces or loses it?
9. What do we call a check that’s still in the hands of the person to whom it is written?
10. What do we call a check that’s been presented to, and paid by, the bank?