Checking Account

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on March 20, 2023

A checking account simplifies the reconciliation of the general account by avoiding a large number of relatively small outstanding checks. It also simplifies recordkeeping because a separate cash disbursement journal can be maintained for each account.

When it is necessary for a company to write a large number of checks for a specific purpose, it may be appropriate to establish a special account to simplify control and monthly reconciliation.

Such accounts are commonly used for payroll, dividends, and interest on bonds.

When the total amount to be paid out is calculated, a transfer is made from the general to the special checking account.

For example, if the payroll department at Sample Company calculates the net salaries and wages for the next payday as $47,542, a journal entry would be made to record the transfer of this amount to the Cash--Payroll Account.

Cash--Payroll Account Journal Entry

In turn, payroll checks are written and the following entry is recorded:

Payroll Payable Journal Entry

Consequently, the book balance in the Cash--Payroll Account (as well as other special checking accounts) is virtually always zero. The bank balance equals the sum of the outstanding checks.

Checking Account FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.