Future Business Leaders of America (FBLA) Accounting Practice Test

What does a restrictive endorsement do?

1. Allows the check to be cashed anywhere

2. Limits how a check may be handled

3. Transfers ownership to a different person

4. Voids the check completely

The correct answer is: Limits how a check may be handled

A restrictive endorsement limits how a check may be handled, providing specific instructions on what can be done with the check. When a check is endorsed restrictively, the payee typically writes "For deposit only" along with their signature, meaning that the check can only be deposited into the payee's account and cannot be cashed. This adds a layer of security, ensuring that the funds are transferred safely and accurately. Other options do not accurately describe restrictive endorsements. For example, allowing the check to be cashed anywhere would describe an open endorsement, which permits a broader range of handling. Transferring ownership refers to the concept of an endorsement but does not encapsulate the limitations imposed by a restrictive endorsement. Similarly, voiding the check completely would negate its value, which is not what a restrictive endorsement does. By focusing on how a restrictive endorsement limits the handling of the check, we can see its primary function in enhancing security in the transaction process.