Checking and Debit Accounts, balancing your bank statement

Do I really have to do this?

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Oh, that dreaded bank statement.....

I know how confusing it is to balance your bank statement to your check register. I know that the math of the whole thing is, well, confusing. Yes, and it is time consuming. Yet, in order for you to find errors, both yours and the banks, it is a necessary task. I have found several errors while balancing my bank statement, mostly mine, but some were the bank's error. One of the most memorable ones was the time I wrote a check for $250 to pay a bill and the bank took it at $2.50. I called and the bank argued with me. When I pushed the situation, the bank 'threatened' to go get their copy of the check. I told them to go ahead and when they had it in their hand, they would need to give me back all of the finance charges I had been charged for not correctly paying my bill. Boy were they apologetic after that.

The bank statement, though appearing complicated, is rather easy to do. So let's get started and I think you will be pleasantly surprised when you see how easy it.

What a typical bank statement might look like:

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A dry but factual explanation:

Don't get panicky if you can't remember what each one is because the bank has conveniently labeled each part for you. They even put in the (-) and (+) signs. That way you can easily see what's there without having to go back to your notes.

What the bank statement contains...

I marked each section to help you follow along.

A} This is usually where the bank lists their name, or they might list it in the center of the page above their phone and address.

B} This is usually where the bank lists their phone and address and marks other identifying and/or important items like “Equal Housing Lender” or “Member FDIC-Federal Deposit Insurance Corporation”.

C} This is usually your name and address.

D} This is usually the page number and number of pages included (such as page 1 of 3), the dates (period) covered such as December 18, 2000 to January 15, 2001 and your account number(s).

E} This is a summary of your account giving beginning balance, total deposits, total interest paid to you, total withdrawals you made, total service charges (fees) applied to your account, and Ending Balance of your account based on items that have been processed by the bank. Check this section for an overall look at what the activity of your account has been since your last statement. Pay particular attention to the Service Charges section for charges of which you may not have been aware.

You can hide from reconciling your bank statement, but that just means you will never know your true balance. This will cause a lot of overdrafts, and fees.

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The 'F' section is broken down as explained below:

  • The first column is the Date which is actually the date the bank processed the transaction, not necessarily the date you made the transaction (wrote a check, use the ATM, etc.).
  • The second column is the Description of the transaction which lists the company if it was an electronic transaction (marked as Activity POS…..), the fact a check (or more) was paid (no information other than check paid will be given), the fact that a deposit was made and whether it was direct deposit or not, fees and what type, interest charged or added, etc.
  • The third column is the amount of the transaction. A minus sign will appear if the amount is being deducted from your account.
  • The Fourth column is the balance of your account once that transaction has been processed.

Most people use check marks, like this one shows, once they find the transaction in their check register and verify that the amount is correct--Section G1

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OH NO! What do you mean the balance doesn't match?

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Before you begin:

Remember that the balance at the bottom of your bank statement is most likely not correct according to your check register. This is especially true if you have a lot of transactions. So don't look at the bank's bottom line and panic, please.

The first thing you want to do is look at the first page of your statement in the summarization section (E shown above) to see if there were any items affecting your account that you were not aware of--usually the fees section is the one you need to check. If there are any (and they are correct), be sure to record them in your check register before trying to balance it. If there is a problem, call your bank or go to the bank and ask to speak to a supervisor.

What a typical check register will look like as you use it to balance with your statement.

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Don't feel bad if you are confused the first time.

All those figures and check marks and...... Just try to stay focused and it will be done before you know it.

Now pull out your check register and we will begin:

Compare each charge and deposit in your register with the charges and deposits recorded by the bank. Check carefully for amounts and dates. (Remember that the date processed is what will show up on the bank statement.) Put a small check mark next to the amount on your bank statement and another one next to the amount in the register as each amount is verified.

Errors in your check register (I don't know about you but the errors are usually my fault and not the banks) can be corrected in anyway you like, but be sure to keep it readable for future reference. I generally mark the item with an asterisk then go to the last entry on my register and note the transaction information and the correction. Then I put a check mark in the check column so I'm not searching for it later.

A few definitions before we get to the actual reconciling:

  • Cleared the bank--means that the bank has received the order for payment or deposit and has actually processed the order and recorded the amount in the account. It can take anywhere from 1 day to 10 business days for items to clear the bank (some may be longer depending on where the other bank or company is located). PLEASE NOTE--deposits of large checks or personal checks are usually held for 1 to 5 business days to ensure that they will clear. Ask when making a deposit so you do not try to use funds that are not available as this may cause fees to be applied.
  • Fees--any amount charged to your account for actions the bank had to perform for you. There might be ATM fees, fees for a money order, fees for letting your account fall below the minimum required amount and there could even be fees for each check you write. Be sure to check with your bank to see what fees will be charged.
  • Hold--a hold on a check means that the bank will not release the funds for you to use until the check has cleared and the bank has the money. Also, they might put a hold on debit transactions for something you ordered on line. This could be because the company has already proven to be unreliable or because the transaction is with an international company.
  • An FYI-when you use your debit card at the pump of a gas station, the station will put a hold on up to $100 (or more ) of your money which will prevent you from using that money for about three days. Credit cards are better for these transactions, or you can go inside to pay with your debit card and use your pin number. This will usually prevent the hold.

Forms for you to see and follow...

Bank reconciliation form
Bank reconciliation form | Source
Completed bank reconciliation form
Completed bank reconciliation form | Source
Balanced check register
Balanced check register | Source

Reconciling your bank statement with your check register:

To begin look for the reconciliation form somewhere on the bank statement (usually on the back of the first page). It will look like the illustration to the right. Not all banks are the same and so not all Reconciliation forms are the same. Look for the section marked Checks Outstanding (or Outstanding Checks) and this will give you a hint that it is the form you seek.

In the first column (Outstanding checks), write down the amounts of all the checks and charges that have not yet cleared the bank (items that are in your check register but not on your bank statement). To find these items, just go back through your check register and look for items without a check mark. Write down in this column any charges (debits) that do not have a check mark next to them. If you need more lines for the amounts, feel free to write them on a sheet of paper or whatever else you would like to use.

In the next column (Outstanding deposits), write down any amounts that show as deposits (credits) in your check register, but not on your bank statement. Again, look for the items that do not have a check mark next to them.

Be sure your check register is fully balanced: charges or fees you find on the statement but not in your register (or vice versa) has been added or subtracted from your check register balance.

The final column is where you will balance everything together--wait, come back, this the easiest part to do. Look at the final balance on your bank statement and write it on the first line. Then add all of your deposits or credits together (from the Outstanding Deposits column). Put that amount on the second line. Add the first and second lines together and put that figure on the third line (feel a little like tax time, I know). Now, add up all of your charges listed in the Outstanding Checks column. Put this amount on the fourth line. Subtract this amount from the third line above it. Put this amount on the last line. This line should match the final balance in your check register. If it does, then mark that point in your check register on the next blank line. Draw a line through all the line so you don't accidentally use it for another transaction.

If the amount does not match, don't throw your hands, you can usually fix it. It can be something as simple as a math error or something as difficult as a missed bank transaction. This will be time consuming, but take joy in the fact that most of the time it is a simple calculation error which is usually easy to find and correct. If, after you have followed the steps below and your check register and bank statement still do not match, take everything to your bank and ask for help.

Do you think you can balance your bank statement to your check register now?

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Now that the hard part is finished, why not a little cat nap before dinner?

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Finding the error

To find the problem (Note-once you find the problem and your bank statement and check register balance match, you do not have to go on with futher steps.)

  • Re -add each column (Outstanding checks and Outstanding deposits) to see if there was a mistake.
  • Check your calculations in the third column.
  • Check the amounts written in your check register (with no checkmark) and in the first column on the reconciliation section of your bank statement. This is where you will most likely find the error.
  • Rebalance your check register starting from the last time your check register was reconciled (or from the beginning of your check register if this is your first time balancing). This is also a good place to find errors. Be careful in correcting errors because if the amounts are illegible, you may not be able to recognize them at a later time.
  • Please note, since each bank statement only covers a month of transactions (banks use fiscal dating which means your statement will run from the date you opened it to approximately 30 days afterwards). That means you will only have to go through that month in your register to seek the correction (which is why we mark balanced and the date). Exceptions to this rule are checks that are from one or two months prior but have not yet been cashed, checks that you failed to record, deposits that you failed to record, or incorrect amounts recorded in your register (most of these will be caught when you are comparing what the bank said came in and what you have in your register).

When writing a check, balancing your check register, and reconciling your bank statement to your check register, be careful. Small mistakes now can mean large fees or problems later. Just take your time. And remember your bank is your best source for assistance if you have a problem you can't fix.

© 2012 Cheryl Simonds

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