6. Checking account reconciliation Aa Aa E How Do You Balance Your Checkbook? Your roommate, Akira, is embarrassed. She has never before had a checking account, but she finally opened one last month. She's standing in the doorway of the kitchen with her check register in one hand and her recently arrived bank statement in the other. Admitting that she doesn't know what to do next, she's asked for your help in learning how to reconcile, or balance, her checkbook. Being both a good friend and a student of personal finance, you've agreed to walk Akira through the process. Moreover, knowing the value of asking and answering good questions when learning how to do something, Akira agreed to answer your questions about the process. Akira: Thanks for helping me with this bank statement thing. So, where do we start? You: Let's start with some preliminary questions. I'll ask and you answer, and we'll agree on some fundamentals about reconciling bank accounts. So, why is it a good idea to reconcile your bank account or balance your checkbook? Akira: According to my personal finance book, reconciling my account will help me spot potential errors in the bank statement or my own records, and it will verify my account's actual balance as of the You: You're absolutely correct. Now, according to the experts, how frequently should a bank reconciliation be performed, and how frequently should ongoing or between-statement deposits and withdrawals be verified with the bank? Akira: That's an easy one. I remember reading that I should reconcile my bank account but I should verify my ongoing deposit and withdrawal transactions online every couple of days. You: That's right! Now that you've got the fundamentals under control, let's go through the actual process of balancing the checkbook. Now, with Akira's latest bank statement and her check register or ledger in hand, you can examine the documents. Use the grey slider along the right-hand side of each of the following boxes to see Akira's bank statement and check register (account ledger), Fourth State Bank of San Francisco, CA Statement of Account March 2011 Akira Smythe 550 Angel Street San Francisco, CA Date 3-01 Subtractions Additions Description Previous balance Deposit Check 500 Account 348596 Balance 1,246.00 1,546.00 996.00 3-01 300.00 3-03 550.00 withdrawals Date Mar-01 Mar-03 Mar-04 Mar-05 Mar-05 Mar-11 Akira's Account Ledger Transaction Description Deposit Deposit - Payroll $300.00 Check 500 - Rent Check 501 - Car payment ATM withdrawal 87501 Deposit - Birthday gift 75.00 ATM withdrawal 89502 $550.00 275.00 25.00 Balance $1,546.00 996.00 721.00 696.00 771.00 735.85 35.15 Using the documentation from the bank and from Akira's check register, construct the bank reconciliation statement for March 26. Note: Any items that you enter into the bank reconciliation statement should be entered in the order in which they appeared on the account ledger and bank statement. Akira Smythe's Bank Reconciliation for March 29 Ending balance per bank statement, March 26 Add: Deposit in transit Deduct: Outstanding checks and ATM transactions Check number ATM number Check number ATM number Total withdrawals Adjusted bank balance Balance per books, March 29 Subtractions Additions Date 3-01 3-01 300.00 550.00 3-03 3-04 3-05 3-05 Description Previous balance Deposit Check 500 Check 501 ATM withdrawal Deposit ATM withdrawal Donosit Balance 1,246.00 1,546.00 996.00 721.00 696.00 771.00 275.00 25.00 75.00 3-11 35.15 735.85 1025 25 3.15 300.00 75.00 35.15 771.00 735.85 1,035.85 870.85 300.00 3-05 3-11 3-15 3-18 3-21 3-22 3-24 3-26 Deposit ATM withdrawal Deposit Check 502 ATM withdrawal Deposit Check 503 ATM withdrawal 165.00 47.65 823.20 105.00 928.20 873.20 55.00 50.00 823.20 Date Withdrawals Mar-01 Mar-03 Akira's Account Ledger Transaction Description Deposit Deposit - Payroll $300.00 Check 500 - Rent Check 501 - Car payment ATM withdrawal 87501 Deposit - Birthday gift 75.00 ATM withdrawal 89502 Mar-04 Mar-05 $550.00 275.00 25.00 Balance $1,546.00 996.00 721.00 696.00 771.00 735.85 Mar-05 Mar-11 35.15 Mar-05 75.00 35.15 300.00 Deposit - Birthday gift ATM withdrawal 89502 Deposit - Payroll Check 502 - Groceries ATM withdrawal 93503 Deposit - Stipend Check 503 - Bookstore ATM withdrawal 94504 Check 504 - Dry cleaning Mar-11 Mar-15 Mar-18 Mar-21 Mar-22 Mar-24 Mar-26 Mar-27 165.00 47.65 771.00 735.85 1,035.85 870.85 823.20 928.20 873.20 823.20 779.20 105.00 55.00 50.00 44.00 Mar-24 55.00 50.00 44.00 Mar-26 Mar-27 Mar-27 Mar-27 Mar-28 Check 503 - Bookstore ATM withdrawal 94504 Check 504 - Dry cleaning ATM withdrawal 97505 Check 505 - Car insurance Deposit - Belated birthday gift ATM withdrawal 99506 873.20 823.20 779.20 678.45 568.45 793.45 100.75 110.00 225.00 Mar-29 37.50 755.95