Future Business Leaders of America (FBLA) Accounting Practice Test

What action is taken when a check is endorsed?

1. It is canceled

2. It is transferred to another person or entity

3. It is voided

4. It is deposited in the bank

The correct answer is: It is transferred to another person or entity

When a check is endorsed, it is typically transferred to another person or entity. Endorsement involves the signature of the payee on the back of the check, which authorizes the transfer of the check’s ownership to another party. This action allows someone else to cash or deposit the check instead of the original payee. In many cases, endorsements can be specific or blank. A specific endorsement names a particular person or entity to whom the check is being transferred, while a blank endorsement simply consists of the payee's signature, allowing the check to be cashed or deposited by anyone holding it. This makes endorsement a crucial process for the negotiability of checks in financial transactions. The other options do not accurately describe the function of an endorsement. Canceled checks result from checks that are marked as no longer valid, often after payment, while voided checks are those that are declared invalid before being processed. Depositing a check is a subsequent action that may occur following endorsement, but endorsement itself specifically refers to the transfer of ownership.