Checkbook Balancing 101

In these days of online banking and debit cards, traditional check-writing has become a bit quaint. As for reconciling that monthly balance, computer software will even do that for you. However, one thing hasn’t changed. There’s an old saying: a computer is only as good as the person that programs it, and thus a checking balance will be meaningless if transactions are entered incorrectly or worse yet, not recorded at all.

The message here? If you’re going to have a checking account, it’s still important to have an understanding of how to balance it with that monthly statement. Put simply, this verifies that your figures are in agreement with the reported balance of your bank or credit union. Checkbook balances that don’t match with bank statements are the result of error. While the error can be the financial institution’s fault, it is almost always the other way around.

The two most common errors that occur are mathematical mistakes and failure to record  transactions. On the rare occasion the bank is at fault, it is usually due to a withdrawal or deposit being posted to the wrong account. While a mathematical mistake can make an account holder’s balance appear to be less than what it actually is, Murphy’s Law is usually in effect, and as a result, the exact opposite will occur: You will think you have more money sitting in that account than what is really there! Of course, this will also be the case if a transaction is not recorded in the checkbook register. In turn, this is a good way to bounce checks and therefore tarnish your credit rating all in one action.

Financial institutions typically impose a penalty fee that can range anywhere from $25-$35 for each check that falls short of one’s balance, and this is in addition to what the merchant you purchased items from will also charge.

Finally, if there is a discrepancy in what your balance reads as opposed to that on the statement, balancing the checkbook prevents having to wade through months of transactions to find the mistake. With these facts established, here are the steps to take in ensuring your balance matches the bank’s balance:

The following can be done in either order. The key is that any difference in your recorded numbers and those of the institution’s must be the same in both methods.

As soon as that bank or credit union statement arrives in the mail, take a look at what they have recorded as the ending balance. It doesn’t matter whether it’s dated yesterday or a week ago. Their ending balance for the period is all you need to be concerned about for now. This statement will also include a record of checks written and withdrawals made during the period (usually a month) as well as deposits and other credits or debits. (These can include transfers from savings accounts or conversely; fees for printed checks or use of automated teller machines). An important note here: If you don’t record such fees as they occur, you will have to subtract them from your checkbook balance before you begin. If you forget to do this, you’ll have a mess on your hands.

Next, place a check mark next to every transaction that coincides with what you have written in your checkbook. Once this is done, add up the total of credits (deposits, transfers) not checked off. Take this sum and add it to the ending balance that appears on your statement. Once this has been done, you will want to add up the total of outstanding checks and withdrawals (those not recorded by the bank that appear in your checkbook register).  Take the sum of your outstanding checks and withdrawals and subtract this amount from the total of the institution’s written balance and your outstanding credits (deposits or transfers).

Ideally, this number should equal your checkbook register’s balance. If the result is greater than your checkbook’s balance, then you made an error in your favor. Thus , you have more money in your account than you thought! However, as stated above,  it’s usually the other way around.  In other words, this sum will be less than your checkbook register’s balance, and it will need to be adjusted down by the difference in order to be correct. If it’s really bad, this can result in a negative number. This means you’re in the hole and at great risk for a check to bounce.

As hinted earlier, you can also balance your checking account in reverse. This is done by using your checkbook’s balance as a starting point. Instead of subtracting the outstanding checks and withdrawals, you would add them to this balance. Likewise, you would subtract the credits (deposits, transfers) from this total. In turn, this should equal your bank statement’s balance. Thus, in reverse fashion, if this amount turns out to be less than what your statement says, you have more money than what you thought you had. Again, the opposite is more likely: Your total will probably exceed what is recorded on the statement and you’ll actually have less money in your account than what you believed.  You know. Murphy’s law, right?

Balancing a checkbook each month by either method listed above is not only a good habit to acquire, but can also save much grief and embarrassment.