Future Business Leaders of America (FBLA) Accounting Practice Test

What is an endorsement in terms of banking?

1. A bank statement summary

2. An authorized signature on the back of a check

3. A method to cancel a check

4. A description of bank fees

The correct answer is: An authorized signature on the back of a check

An endorsement in banking refers to an authorized signature on the back of a check, which serves to transfer ownership of the check from one party to another. When a check is endorsed, the endorser (the person who signed it) grants permission for the funds to be paid to the person or entity named on the check. This signature can also include instructions regarding whether the check can be cashed or deposited. Endorsements can take various forms, such as a blank endorsement (just a signature), a restrictive endorsement (for deposit only), or a special endorsement (transferring the check to a specific third party). The purpose of the endorsement is critical in ensuring that the transaction is secure and properly authorized. This definition clearly distinguishes endorsement from other banking terms like a summary from a bank statement, which consolidates account activity; a method to cancel a check, which is typically done through a stop payment request; or a description of bank fees, which outlines charges for various banking services. Understanding endorsements is essential for managing checks effectively in banking and finance.