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Balancing Your Checkbook

13-Sep-2012

How to and Why to:
Do you balance your checkbook every month? Many don’t, everybody should and here are some of the reasons why:
1.    Balancing your checkbook verifies that your records math the bank’s records.
2.    Bank’s can make mistakes, but it’s more likely that you’ll make an error in your calculations and balancing allows you the opportunity to find it.
3.    If you do make a mistake or don’t post a transaction, you may start bouncing checks and incurring NSF fees that can be $30.00 per item or maybe even more.
4.    Balancing your checkbook allows you to monitor where and how your spending the bank held portion of your income, it’s like a quick monthly re-cap of your spending.
5.    If there is an error or a problem, monthly balancing can save you from having to wade through months of transactions to figure it out.


Getting Started:
Most bank statements include form(s) and a method of balancing your account. If yours doesn’t, simply create your own by having four columns, two for “Outstanding Deposits” to reflect the date and the amount. The remaining two are for “Outstanding Check” and should reflect the check number and the amount. Next you will list the above mentioned items accordingly and calculate the totals.
Now you take the ending balance from your statement and add the OD’s and subtract the OC’s and this will be your New, more accurate balance. This should also equal your checkbook balance after you record the interest and fees in your checkbook register.

Reconciliation:
Determine if there are checks that haven’t cleared the bank. Sort your cancelled checks in their number order, or use the listing of your cleared checks in numerical order shown on your statement. In your checkbook register, check off each cancelled check returned to you or each check that appears on the listing; look to make sure the amount you recorded matches the banks records.

1.    Reconcile Your Deposits: Make sure each deposit shown on your bank statement is recorded in your check register (especially if you have direct deposit, which you can easily forget to record). Also, go through your deposit slips, paycheck stubs, etc., and make sure the bank statement shows all the deposits you made. Check off the deposits in your check register as you did for checks.
2.    Reconcile Your ATM Withdrawals and Debit Card Purchases: Go through the same process with your ATM withdrawals or debit card purchases, checking off each transaction on the bank statement in your check register. If the bank shows transactions that aren't included in your check register, record them now.                                                                                                      Record Interest Earned and Bank Fees: Check your bank statement for any other fees and record them in your checkbook register. Also record any interest earned in your checkbook register.
3.    List Outstanding Checks: Now go through your checkbook register and in column two of the balancing form, list your outstanding checks (the checks that you did not check off in your check register as having cleared the bank), as well as any outstanding debit purchases or ATM withdrawals that have not yet cleared the bank. Total the column of outstanding checks, debits, and ATM withdrawals.
4.    List Outstanding Deposits: Go through your checkbook register and in column one of the balancing form list the outstanding deposits (the deposits that you did not check off in your check register as having cleared the bank). Total the column of outstanding deposits.
5.    Record Your Bank's Ending Balance: On line one of the bottom section of the Checkbook Balancing Form, enter the ending balance shown on your bank statement.
6.    Enter Outstanding Deposits: On line two of the bottom section of the Checkbook Balancing Form, enter the total outstanding deposits from column one.
7.    Enter Outstanding Checks:  On line three of the bottom section of the Checkbook Balancing Form, enter the total outstanding checks from column two.
8.    Calculate the Balance: Use a calculator to total lines one through three, as indicated by the plus and minus signs on the form, and enter the new total on line four. This should equal the balance shown in your checkbook register. If it doesn't, check for math errors in your checkbook register, such as reversed numbers (e.g., $53 instead of $35), subtracting a deposit instead of adding it, adding a check written instead of subtracting it, automatic payments that you forgot to record, etc.




What You Need:
·    Your most recent bank statement and/or cancelled checks
·    Your checkbook register
·    A checkbook balancing form (found on bank statement)
·    A calculator and a pen or pencil

Tips to Consider:
·    Don't fall for the common mistakes of never recording the pennies on the checks you write; entering bogus amounts in your check register to "fool" yourself into thinking you have less money than you really do so you can be pleasantly surprised later, or to provide a cushion for errors; or only balancing your checkbook once a year when you do your taxes.

·    Always balance your checkbook as soon as you receive your statement in the mail or online and while the transactions are still fresh in your memory. Remember, it doesn’t have to be complicated, use the simplest and easiest method of balancing your checkbook, that you are comfortable with.

·     If you don't reconcile, see if the amount you're off divides evenly by nine. If it does, it may be a transposed number. It's easy to transpose numbers in your register (you wrote $53.94 instead of $53.49, for example).

·    Banks and Credit Unions usually offer an automated telephone “past transaction list” you can use to match your checkbook register or an “online” service that you can sign up to at any time or place and from the convenience of a laptop computer. Check what services your bank or credit union has to offer.

·    Sometimes, in a worst case scenario and if you really find your checkbook in a mess, you can't reconcile it even with your best efforts, and you're incurring fees because of errors, the best thing to do is to open a new account and start over, closing the old account after all checks have cleared. Again, check with your account servicer for the best route to follow.

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