Over the years, I have come to the realization that a lot of people are not familiar with the process of balancing a checkbook.  This is a life skill that can save you a lot of headaches, so today we’ll step through the process.

When your bank statement arrives, you see that the bank balance of your account is $318.42, compared to the balance of $308.52 in your check register.

The following facts apply:

– For simplicity, we’ll assume that this is a brand new account

– The bank charged you $4.52 in service fees

– Per your check register, there are 3 checks during the month

  • Check 1001 for $142.13 (groceries)
  • Check 1002 for $16.12 (greeting cards)
  • Check 1003 for $714.88 (whoa – went overboard at the outlet mall)

– You also withdrew $100 in cash from the ATM

– You had two deposits during the month

  • $1413.12 from your day job
  • $800.34 from your night job

The first thing you do is deduct the bank service fee.  You enter this in your check register, resulting in a balance of $303.88

Next, we check the bank statement to see which checks, deposits, and ATM transactions have cleared the bank.  These are checks 1001, 1002, and the deposit for $1413.12.  Mark these off in your check register – there is typically a column specifically for this purpose.

Next, add the outstanding deposit to your bank balance ($318.42 + $800.34 = $1118.76).  Hey, cool, you’re rich.

Whoa – not so fast.  Next, deduct the outstanding check (check 1003) and the outstanding ATM deposit.  $1118.72 – $714.88 – $100 = $303.88.  Great – that matches the balance in your check register – you’re done until next month.

What do you do if the numbers don’t match?

  • Check your math.  In particular, it is quite easy to make a mistake in the check register
  • Verify that the checks cleared for the amount you have recorded in your check register.  You may have written them down wrong, or your sloppy writing may have caused the bank to improperly process a check (not that this has ever happened to me)
  • Make sure you you have excluded all cleared checks and deposits from the process, while also making sure that you have included all outstanding transactions.
  • Did you forget to record a debit card transaction, automatic payment, or ATM transaction?  If so, record these in your check register and compare the new balance to the number your got during the reconciliation process (the process and adding and deducting outstanding transactions to the bank balance – $303.88 in our example).
  • Make sure you recorded the bank service fee in your check register
  • If you can’t figure it out, take a break and try later.  If you still can’t figure it out, ask a friend for help.

Next month, things change a bit.  When you start the reconciliation process, you will include the transactions that had not cleared this month (check 1003, the $100 ATM transaction, and the deposit of $800.34), as well as any new transactions.  Check off any cleared transactions in the check register, deduct the amount of the bank service fee from the check register, add outstanding deposits to the bank balance, substract outstanding checks from the bank balance and compare again.

 

Any questions?  I’ll be happy to go into more detail.

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Kosmo is the founder of The Soap Boxers and writes on a variety of topics. Many of his short stories have been collected into Kindle books.

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