Balancing Your Checkbook For The First Time

On my post, Do You Balance Your Checkbook, there is a comment from Rattan that asks “what is the best way to balance a checkbook that has never been reconciled”. This is a really great question and one many may have, so I have decided to answer Rattan’s question in a new post so that I might cover it in a more complete manner than a responding comment would allow.

The simplest way to begin reconciling a bank account is to do so from the beginning when the account is first opened. However, you may have an account that has been open for a while and have now decided that it is time to reconcile it.

Lets start with the basic meaning of the word reconcile. According to the Free Online Dictionary, it means to become compatible or consistent. In terms of balancing your chequebook or bank account, this is a bit vague for most people. Basically the intent behind reconciling a bank account is to balance your understanding of what amount of money is available in your account with the bank’s at a given point in time. This is why I like to use the last day of the month. Personally I like to use the phrase balance as opposed to reconcile as it is one most people can relate to better.

If you have been keeping track of your monetary transactions, you are able to easily see which of those transactions have cleared your bank account and which remain outstanding. If you have also been keeping a paper or spreadsheet ledger of your transactions, you will be able to zero in on a specific balance on a specific date.

Find the date and balance in your ledger that corresponds to the date on the bank statement you are balancing to. If you have standard bank charges that appear at a given time each month, remember to leave a line to enter those in your ledger, particularly if you are using a paper method. One way I was able to ensure monthly charges were clearly assigned to a particular month, was by assigning a new page in a paper ledger to each month. If you are using a spreadsheet for a ledger, simply insert a row.

Ok, let’s get balancing. You are going to be matching your records of the following to those that appear on your bank statement.

Deposits Made

On the bank statement, match all deposits that you have made during the month with those listed in your ledger. If there are deposits that you have not recorded in your ledger, enter them at this point. If there are deposits that are not showing on your bank statement, make a note of those.

Checks Written

Match the cheques listed in your ledger with those listed on the bank statement. It is not uncommon to find some cheques missing from the bank statement, particularly if they were written toward the end of the time frame you are working with. Make a list of any outstanding cheques and their amounts.

Cash Withdrawn

Take note of any cash withdrawals made that are listed on the bank statement and match them to the entries in your ledger. If you have missed some, you will have to add those into the ledger at this point. This is also a time when the alarm bells go off if there are withdrawals that you simply can not account for. Do not hesitate to contact your bank and ask questions if something seems out of place, particularly if you have been diligent in recording withdrawals in your ledger.

Interest and Bank Fees

Finally, you will need to take note of any interest paid by the bank into your account or any deductions they have made from your account for transaction fees and add these to your ledger.

At this point, your ledger should have the amount listed that you will be balancing to. Take the amount listed on the bank statement, add any deposits that are not listed and then subtract any checks that are outstanding. The total you arrive at should match the one on your ledger.

Some points to keep in mind if you are just getting started with balancing your checkbook:

- It is not unheard of for cheques to remain outstanding for more than one balancing time frame. If you have kept a list of cheques you have written, you will want to possibly go back over your bank statements for a period of roughly six months and verify that all cheques you have written have also been recorded on your bank statements. If you have not kept track of checks you have written, start doing so at once and leave room in your budget for a few surprises until your tracking is showing all cheques from past balancing periods to be accounted for.

- If you have not been keeping a ledger or record of your transactions up until this point, it is going to take a bit of time for you to be able to balance your chequebook properly. You can not balance to records you do not have. Once again, get started with daily recordings of any transactions and in a month or so, it will begin to fall into place.

The purpose of balancing your chequebook to your bank statement is to catch transactions you may have forgotten to record in your ledger and to catch any that have no business being there. You would want to know, would you not, if money is being taken out that you did not authorize?

What balancing your chequebook will not do necessarily is give you the “spendable amount” in your bank account. As you see from the above, if you receive a balance from the bank on a given date, it may not reflect all deposits that have been made or cheques that have been written as they have not as of yet cleared. Your ledger will give you a much better indication of what amount you have available to spend.

I like to have a visible record of my account’s balance on the last day of the month. This gives me the ability to go back and see where I have been making headway and where I am falling behind. With this ability I am able to analyze what I am doing and make changes.

This is slightly more difficult to do with a program such as Quicken Deluxe. A trick that I use is to change the date of any transactions that fall on the last day of the month to the day before. I then enter a note dated the last day of the month with the balance I have arrived at. This gives me a point in time referrence that will not be lost.

Warmest regards,

SherryD