Checkbook Balancing 101

Checks, whether electronic or paper, are convenient ways to pay bills and send others money. You can then keep track of your drafts and deposits in a checkbook register. However, what if you make a mistake? What if the bank makes a mistake? What if you forget to write down an ATM withdrawal? These situations can potentially be expensive because an overdraft can result in fees, some of which may be charged for every day in which the account is overdraft.

This is why it is necessary to regularly balance a checkbook register.  Most people will balance their checkbook at least once a month when the bank statement arrives in the mail. It is advisable to do this as soon as possible in order to make it easier to find any errors within a minimum of transactions.

Once you have the statement, get the checkbook register and a pen. A calculator is also highly recommended. Select a well-lit area that is suitable for reading and writing and has a minimum of distractions. All of these precautions should make it easier to find mistakes and prevent new ones.

The next step will be to make sure all recent transactions have been entered. If you haven’t yet recorded all ATM, debit or deposit transactions into the checkbook register, do this first. Make sure that all checks have been entered as well and that the last check entered into the register is one less than the first one in the working checkbook.

Next, for each cleared transaction in the bank statement, check off the corresponding transaction in the checkbook register in the column provided (it will have a checkmark at the top of the column). You should place a checkmark beside the transaction by the item in the statement as well to ensure you have reviewed every transaction.  In the end, you may or may not have uncleared items in the checkbook register, which is fine because those will be dealt with in succeeding steps. However, all transactions in the statement should be reflected in the checkbook register. If there are any items unchecked in the statement, they should be investigated and accounted for as soon as possible.

Next, all uncleared deposits and other credits should be listed in chronological order on a sheet of paper. Many bank statements will provide a space in which to do this. A list of credits should be written down and then rechecked against the checkbook register to ensure none were missed. Now, add up all of the deposits and credits.

Now the same should be done for uncleared debits, whether check, ATM withdrawals or debit card purchases. Make a list of these transactions, double-check the list and total all of the debits.

Your final balance should be the statement balance plus the total of credits plus the total of debits. This balance should match what is in your checkbook register.  If it does not, then here is where a calculator comes in very handy if not before. If the mistake is not immediately evident, going back to the point of the last checkbook balance in the register and rechecking the running balance going forward using a calculator might be the only alternative.

Obviously, if there is a mistake, it can be rather involved finding the error. Some experts will tell you not to worry about it if the mistake is under an arbitrary dollar amount, as the time spent looking for the mistakes is worth more than the actual mistake. Even if you only make minimum wage, is it worth spending a half hour looking for a one-cent mistake? For most people, the answer will be, “No.”   However, if you find this consistently happening three months in a row, it might be worthwhile evaluating why this keeps occurring in order to avoid larger mistakes.

Once a mistake is corrected, it is best to fix it with an entry at the end of the running balance in the checkbook register. Be sure it is checked off in the cleared column and neatly write the new balance in the balance column.

In the end, if the balance cannot be properly reconciled, however, make a visit to your local bank branch. Even with computers, banks still can make mistakes.  Normally, it will be in the form of incorrect fees or credits, but it can be incorrect amounts entered due to discrepancy between the numeric amount and written amount on a check as well. It still is not impossible for a bank to have a math error, however unlikely. Going over the transactions with a bank representative can illuminate where the problem is.

It is important to balance the checkbook every month or whenever the bank statement comes out. With online banking access, it is even easier to keep on top of personal finances between statements. However, it is still important to keep the register reconciled to catch mistakes and avoid costly fees.