Balancing a Checkbook, Quickly and Easily

Transcription

Jazer Solutions, LLC
Balancing a Checkbook, Quickly and Easily
Balancing our checkbook can be a frustrating task, and just like credit card statements, timing plays
a role that can have us scratching our heads and wondering why the numbers don’t add up (see the
article “Credit Card Statements and Billing Cycles”). It’s an important task though and well worth
the effort, because if we don’t balance them we run the risk of writing a check that won’t clear.
Writing a check that we don’t have the money on deposit to cover, results in an over-drawn account
along with charges from our bank for handling the check, the embarrassment of a check not
clearing, and having to write and send another check. In many cases the business receiving the
“bad” check will also tack on a fee. This problem is so prevalent that banks have instituted
Overdraft Protection and a host of other programs to help. It’s been said that “timing is everything”,
and in the case of checkbook/checking account reconciliation, timing has a great deal to do with
whether or not our book (the little ledger that the bank gave us) and account balances match. So
how do we handle this quickly and simply?
Banks provide a host of online information, and at any moment we can log on and see our account
balances. Our checking account screen shows a list of transactions in reverse chronological order to
help us stay up-to-date and to see the most recent transactions first. At the end of the monthly cycle
(this may or may not start on the first of the month and may or may not end on the last day of the
month), a statement is made available or mailed to us that shows transactions and balances for the
monthly period. The Statement usually begins with a Summary section, followed by a list of
transactions. Here’s a simplified example:
The Account Summary is a bird’s eye view
of the account for the month. The
Beginning Balance, and total amounts for
Deposits, Checks, ATM and Debit Card
Transactions, Fees, Other Subtractions,
and the Ending Balance are listed. For
most of us, we can’t balance our
checkbooks using these amounts because
we’ve had other transactions that haven’t
yet been handled by the bank. For instance, any checks written on August 25th or 26th probably
haven’t been posted to the bank by the 27th and wouldn’t be included in the statement amount. The
detailed list of transactions on the statement can help isolate these.
1|Page
Copyright © Jazer Solutions, LLC
Detailed List of Transactions:
The detailed listing shows all of the account transactions for the monthly period that the bank has
handled. In the example, the first transaction is a deposit of $782.35. From the Account Summary on
the previous page, we know that the Starting Balance for the month was $72.63. Adding the deposit
of $782.35 to the stating balance of $72.63 gives us $854.98. The next three items on the list are
checks that were written (notice the difference in the way that the second check is shown). If we
total these three checks ($200.00 + $145.27 + $123.98 = $469.25) we get a number that is different
from the Account Summary amount for Checks Posted on the previous page. The difference is the
way that the bank handled the check # 124. If we remove check #124 from our addition ($200.00 +
$123.98 = $323.98), we now agree with the amount for Checks Posted shown in the Account
Summary. We can also see that check #124’s amount ($145.27) shows up on the Account Summary
under Other Subtractions. It was handled by the bank, but not the same way that a normal check
would be posted. This coincides with information on the Statement in the “Checks Posted in
Numerical Order” section shown below.
Check number 125 has an asterisk next to the number indicating a gap in check numbers…check
#124 is missing. Again, it was handled by the bank, but not as a normal check posting. This can be
confusing or even overlooked. Our simple example had very few transactions. When a full month of
normal account activity is reviewed, there can be multiple cases where the way transactions are
2|Page
handled and the timing of postings can make the statement balance and our checkbook balance
amounts very different.
So how do we reconcile these two amounts quickly and easily?
There is an easier way, and it can be done any time we’d like to balance our account and checkbook.
We start with the checkbook ledger. Using our example above, the monthly transactions are
entered as we make them (not as the bank posts them). On the sample ledger below, the blue font
indicates transactions that have been made that do not appear on the bank statement. Let’s walk
through each item on the ledger.
The first item at the top right corner is the balance brought forward from the previous page.
Although $72.63 agrees with the beginning balance on the statement in our example above, this
would not normally be the case. The beginning balance would only include transactions that the
bank handled by that date. The example will explain how to resolve this situation.
The first transaction entry is labeled AD in the left hand column for automatic deposit (a paycheck).
The date of the transaction and a description are entered, and the amount ($782.35) is entered in
the “Deposit, Credit (+)” column. Using the proper column is a great help in keeping amounts going
into the account and amounts coming out of the account separate.
The next three entries are checks #123, 124, 125. Again, the dates of the transactions and
descriptions are entered, along with the amounts (this time in the “Payment, Fee, Withdrawal (-)”
column). Next, the ATM transaction is entered and the $2.00 fee is added to the amount (so it’s not
3|Page
forgotten). Very often we forget the transaction fee, or we lose the receipt. In that case, it would
have to be entered when we saw it on the bank statement’s Detailed List of Transactions.
At this point, all of the transactions that we’ve covered so far also appear on the monthly statement
and the amounts agree including the ending balance ($183.73). As we review the statement and
locate the transaction in our checkbook (ledger), it’s a good idea to check off those items in the
column as shown in red below. I also make it a habit to note somewhere in the ledger that it has
been balanced right on the line where it balanced (shown in green). This way if an error occurs (I
write a number wrong or make an addition or subtraction error), I know it must be somewhere
after where I wrote “Balanced” the last time that I balanced the checkbook.
When I receive the next month’s statement, I begin with check #126 in the ledger to compare with
the statement and go from there. I can also go online whenever I like and balance the ledger using
the checking account details. I don’t have to wait until the end of the month. This keeps the ledger
up to date, and balanced in shorter intervals…which is much easier. Trying to balance a checkbook
after two, three, or six months can be a very frustrating task. It also increases the chances that
things will get out of control. It’s much better to keep things up to date.
Checkbook Balancer
The example above had only a couple of outstanding transactions. Let’s try a more complicated
example and use the Checkbook Balancer tool to reconcile the balances. We’ll use the same bank
statement balance from before ($183.73), but we’ll add additional transactions to the ledger and a
mistake or two to the checkbook ledger…because we all make mistakes or forget to enter a
4|Page
transaction once in a while. This is when having a recent “Balanced” notation in the ledger can be a
real help. The ledger below is the starting point for the example, and all of the transactions that are
beyond the “Balanced” notation are in blue text.
Let’s assume that we reconciled with the bank statement balance of $183.73, made a note in the
ledger, and have had a few more transactions. We need to write a check for $300.00 that absolutely
cannot bounce, and we want to double check the balance of $306.68 to be sure the money is
available.
The Checkbook Balancer (next page) accepts the Statement Balance, Checkbook Balance, and
Outstanding Items to reconcile the difference between the two balances. As each outstanding item
is discovered and entered, the tool recalculates a “Reconciled Difference” amount to highlight what
differences still exist. This can be a great help when trying to locate a missing entry like an ATM fee,
or interest that the bank applied to the account. It also helps to locate errors in the ledger as we
walk through the items.
5|Page
First, we enter the ending balances from
the statement $183.73 and our ledger
above $306.68 and the tool calculates the
difference ($122.95). This is the number
that we have to reconcile. The same
number appears at the bottom in the row
labeled Reconciled Difference. As we add
amounts to the Outstanding Items section,
the Reconciled Difference amount will
change. The goal is for the Reconciled
Difference amount to be $0.00.
This is done using the Outstanding Items
list in the tool, which is where we will
enter items that were not on the statement when we balanced the checkbook last time (blue text on
the example checkbook ledger).
Second, we add up all of the outstanding checks glancing at each entry as we go along. We find that
the “Rebate Check” that we deposited was entered in the check column by mistake, when this was
actually a deposit (shown below in red). Looking at the balance column (far right), it’s obvious that
the $17.00 was subtracted from the balance instead of being added.
We make the correction by moving the transaction to the proper column, and adding the amount to
the balance. This also requires changing the balance column for the remaining items in the
checkbook ledger. Items that have changed are shown in green text (next page), and the new
checkbook ledger balance is $340.68.
6|Page
Notice that the actual change to the balance is an additional $34.00. This is because we had
subtracted $17.00 before, and now we’re adding $17.00, so the total change is $34.00.
Now we adjust the checkbook balance
entry in the tool from $306.68 to $340.68,
and the Balance Difference and Reconciled
Difference
amounts
changed
from
($122.95) to ($156.95).
It really doesn’t matter if the Reconciled
Difference amount increases or decreases
at this point. As we work through the
outstanding items, this number will
fluctuate as we get closer and closer to
either $0.00 or the amount that is causing
the error.
Next, we’ll total the Outstanding Items and enter amounts beginning with checks. We need to total
the check amounts that are on our ledger (complete ledger on next page), but not included in the
statement balance. Adding up the outstanding checks from the ledger (now that the Rebate Check
error has been corrected), gives us a total amount of $527.29.
Nephew’s B’Day
Credit Card Payment
Car Payment
Cable Bill
$30.00
$150.00
$250.00
$97.29
$527.29
7|Page
This total is entered in the Outstanding
Items section in the row for checks (red
arrow), and the Reconciled Difference
amount recalculates and is now ($684.24).
There is no need to worry about which
numbers should be negative or positive.
The tool will adjust the inputs and make
the correct calculation. Just enter them all
as positive numbers. Dollar signs and
commas are also added automatically, so
there’s no need to enter these either.
Next on the Outstanding Items list is
ATM/Debit Withdrawals. We add up any
8|Page
ATM Withdrawals and Debits that are
listed on the ledger after the “Balanced”
notation. Reviewing the ledger, there is an
ATM Withdrawal for $100.00 and a Store
Debit for $16.11, so the total is $116.11.
This amount is entered into the tool and
the Reconciled Difference is now -$800.35.
So far, we have reconciled the checks and
ATM and Debit Withdrawals that appear
in our ledger and not on the bank
statement. This exercise of adding up the
items while reviewing the transactions
can often reveal an error in the placement
of an entry or a mathematical error (or both). Sometimes we’re in a hurry, or tired, or just make a
mistake, and reconciling the two balances frequently makes finding errors much easier.
The next item in the Outstanding Items
list is Deposits.
We total any deposits on the ledger that
occurred after the “Balanced” notation.
The
total
Deposits
Outstanding
(Automatic Deposit $782.35 + Rebate
Check $17.00 = $799.35) are added
together and entered in the tool (red
arrow).
The Reconciled Difference (red box) is
now $1.00, so we’re getting very close to
balancing things, but there is still a
problem somewhere. The good news is
that we only have to go back as far as the
“Balanced” notation to find it. Walking through the transactions (below), and taking a much closer
look this time, we notice the ATM Withdrawal (red box) does not have a charge associated with it. If
9|Page
we can’t remember the transaction, we’ll have to look at the details online or wait until the
statement is available to see if this particular ATM had a charge applied that we omitted. Let’s keep
going and make sure that everything else is right.
With a calculator, a quick review of the addition and subtraction in the ledger reveals that when the
entry for the Debit transaction was made, there was a subtraction error (red text).
$686.08 - $16.11 = $669.97, not $670.97.
These small errors can occur when we’re in a hurry and make quick entries. Balancing frequently
can catch these before things become more difficult to reconcile.
This changes the ledger totals from the Debit transaction forward (shown in green above), and our
new checkbook ledger balance is $339.68. Making multiple changes to the ledger can start to get
messy. It’s best to keep this in mind when making the entries initially.
10 | P a g e
This new checkbook balance is entered
into the tool (red arrow) and the
Reconciled Difference at the bottom is
now $0.00.
This tells us that our checkbook ledger
balance of $339.68 is accurate when
reconciled against the bank balance, and
that there should not be a problem if we
write a check for $300.00.
If there were any Fees or Charges on our
bank statement, they could be entered on
the Fees and Charges row to help with the
reconciliation process.
Notice that if we total the Outstanding Items list, we arrive at the Balance Difference number at the
top of ($155.95).
Checks
$527.29
ATM/Debit Withdrawals $116.11
Deposits
($799.35) subtracted
Fees and Charges
$0.00
($155.95)
There’s just one more thing that needs to be done. Now that we’ve balanced the ledger, we need to
add the “Balanced” notation and check marks in the ledger. This way, the next time we review or
reconcile the ledger with the bank statement, we only need to go back as far as the notation. The
completed ledger is on the next page.
Making timely and accurate entries in our checkbooks and balancing the ledger and the account
regularly are critical to keeping things up to date and knowing exactly how much we have available
in our checking accounts. The alternative could lead to an over-drawn situation and all of the fees
and heartache that go along with it. We all make mistakes from time to time, and the sooner we
catch them and correct them the better.
Chris Simber
President, Jazer Solutions, LLC
11 | P a g e
Enter Checks, ATM
and Debit Withdrawals
in this column
Enter Deposits
in this column
Email comments to: [email protected]
12 | P a g e

Balancing a Checkbook, Quickly and Easily

Transcription

Similar documents

How To REoRdER CHECkS InSTRuCTIonS

Firehouse hosts Great Big Home Show

stockmens insurance agency llc

be in your new home before the new year!

the eLeaP LMS brochure.

a PDF of this press release

How to Read Your Ledger

WELCOME TO CAESARS PALACE

Owner Owner Address

Naturally Playful™ Naturally Playful™ Teeter Totter