4. Checking account reconciliation How Do You Balance Your Checkbook? Your roommate, Melanie, is embarrassed. She has never before had a checking account, but she finally opened one last month. She's standing in the doorway of the kitchen with her check register in one hand and her recently arrived bank statement in the other. Admitting that she doesn't know what to do next, she's asked for your help in learning how to reconcile, or balance, her checkbook. Being both a good friend and a student of personal finance, you've agreed to walk Melanie through the process. Moreover, knowing the value of asking and answering good questions when learning how to do something, Melanie agreed to answer your questions about the process. MELANIE: Thanks for helping me with this bank statement thing. So, where do we start? YOU: Let's start with some preliminary questions. I'll ask and you answer, and we'll agree on some fundamentals about reconciling bank accounts. So, why is it a good idea to reconcile your bank account or balance your checkbook? MELANIE: According to my personal finance book, reconciling my account will help me spot potential errors in the bank statement or my own records, and it will verify my account's actual balance as of the YOU: You're absolutely correct! Now, according to the experts, how date on the bank statement ncillation be performed, and how frequently should ongoing or between-statement deposits and withdrawal reconciliation date but I should verify my ongoing MELANIE: That's an easy one. I remember reading that I should reconcile my bank account deposit and withdrawal transactions online every couple of days. YOU: That's right! Now that you've got the fundamentals under control, let's go through the actual process of balancing the checkbook. Fourth State Bank of San Francisco, CA Statement of Account June 2011 Melanie Smythe 550 Angel Street San Francisco, CA Date Subtractions Additions Account 348596 Balance $1,747.25 1,997.25 6-01 6-01 $250.00 6-03 1,447.25 $550.00 275.00 6-04 1,172.25 6-05 25.00 6-05 Description Previous balance Deposit Check 500 Check 501 ATM withdrawal Deposit ATM withdrawal Deposit Check 502 ATM withdrawal Deposit Check 503 62.50 6-11 35.15 1,147.25 1,209.75 1,174.60 1,424.60 1,259.60 1,211.95 6-15 250.00 6-18 165.00 6-21 47.65 6-22 87.50 1,299.45 6-24 55.00 1,244.45 6-26 ATM withdrawal 50.00 1,194.45 Date Balance Jun-01 $1,997.25 Jun-03 1,447.25 Jun-04 1,172.25 1,147.25 Jun-05 Jun-05 1,209.75 Jun-11 1,174.60 Jun-15 1,424.60 Jun-18 Melanie's Account Ledger Transaction Description Deposit Withdrawals Deposit - Payroll $250.00 Check 500 - Rent $550.00 Check 501 - Car payment 275.00 ATM withdrawal 87501 25.00 Deposit - Birthday gift 62.50 ATM withdrawal 89502 35.15 Deposit - Payroll 250.00 Check 502 - Groceries 165.00 ATM withdrawal 93503 47.65 Deposit - Stipend 87.50 Check 503 - Bookstore 55.00 ATM withdrawal 94504 50.00 Check 504 - Dry cleaning 44.00 ATM withdrawal 97505 100.75 Check 505 - Car insurance 110.00 Deposit - Belated birthday gift 187.50 ATM withdrawal 99506 37.50 1,259.60 Jun-21 1,211.95 Jun-22 Jun-24 1,299.45 1,244.45 1,194.45 Jun-26 Jun-27 1,150.45 Jun-27 1,049.70 Jun-27 939.70 Jun-28 1,127.20 Jun-29 1,089.70 $1,194.45 187.50 Melanie Smythe's Bank Reconciliation for June 29 Ending balance per bank statement, June 26 Add: Deposit in transit Deduct: Outstanding checks and ATM transactions Check number ATM number 44 97505 100.75 505 110.00 99506 37.50 Check number ATM number Total withdrawals Adjusted bank balance 292.25 Balance per books, June 29 $1,089.70