Accounting Fundamentals Certification (AFC) Practice Test

The three most common forms of check endorsements are blank, special, and restrictive.

A blank endorsement simply involves the signature of the payee on the back of the check, allowing it to be cashed or deposited by anyone who possesses it. This form of endorsement is straightforward but carries the risk of theft, as it permits any holder to access the funds.

A special endorsement, on the other hand, includes a specific indication of the person or entity to whom the check is being transferred. By stating "Pay to the order of [name]," the original payee can ensure that the check can only be cashed or deposited by the named individual, thus providing a layer of security and control over the transaction.

Restrictive endorsements add limitations to how the check can be used. For example, a common restrictive endorsement might state "For deposit only," which means that the check can only be deposited into the payee's bank account and cannot be cashed. This offers the payee enhanced security, as it minimizes the opportunity for unauthorized use of the check.

Understanding these three types of endorsements is essential in managing and securing check transactions, ensuring that funds are handled appropriately and with the necessary safeguards in place.