6. Checking account reconciliation

How Do You Balance Your Checkbook?

Your roommate, Melanie, is embarrassed. She has never before had a checking account, but she finally opened one last month. Shes 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 doesnt know what to do next, shes asked for your help in learning how to reconcile, or balance, her checkbook.

Being both a good friend and a student of personal finance, youve agreed to walk Melanie through the process. Moreover, knowing the value of asking and answering good questions when learning how to do something, Melanie agreed to answer your questions about the process.

MELANIE: Thanks for helping me with this bank statement thing. So, where do we start?

YOU: Lets start with some preliminary questions. Ill ask and you answer, and well agree on some fundamentals about reconciling bank accounts.

So, why is it a good idea to reconcile your bank account or balance your checkbook?

MELANIE: 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 accounts actual balance as of the .

YOU: Youre 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?

MELANIE: Thats 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: Thats right! Now that youve got the fundamentals under control, lets go through the actual process of balancing the checkbook.

Now, with Melanies 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 Melanies bank statement and check register (account ledger).

Fourth State Bank of San Francisco, CA Statement of Account

Melanie Smythe				June 2011
550 Angel Street
San Francisco, CA				Account 348596
Date	Description	Subtractions	Additions	Balance
6-01	Previous balance			1,747.25
6-01	Deposit		250.00	1,997.25
6-03	Check 500	550.00		1,447.25
6-04	Check 501	275.00		1,172.25
6-05	ATM withdrawal	25.00		1,147.25
6-05	Deposit		62.50	1,209.75
6-11	ATM withdrawal	35.15		1,174.60
6-15	Deposit		250.00	1,424.60
6-18	Check 502	165.00		1,259.60
6-21	ATM withdrawal	47.65		1,211.95
6-22	Deposit		87.50	1,299.45
6-24	Check 503	55.00		1,244.45
6-26	ATM withdrawal	50.00		1,194.45

Melanies Account Ledger

Date	Transaction Description	Deposit	Withdrawals	Balance
Jun-01	Deposit - Payroll	$250.00		$1,997.25
Jun-03	Check 500 - Rent		$550.00	1,447.25
Jun-04	Check 501 - Car payment		275.00	1,172.25
Jun-05	ATM withdrawal 87501		25.00	1,147.25
Jun-05	Deposit - Birthday gift	62.50		1,209.75
Jun-11	ATM withdrawal 89502		35.15	1,174.60
Jun-15	Deposit - Payroll	250.00		1,424.60
Jun-18	Check 502 - Groceries		165.00	1,259.60
Jun-21	ATM withdrawal 93503		47.65	1,211.95
Jun-22	Deposit - Stipend	87.50		1,299.45
Jun-24	Check 503 - Bookstore		55.00	1,244.45
Jun-26	ATM withdrawal 94504		50.00	1,194.45
Jun-27	Check 504 - Dry cleaning		44.00	1,150.45
Jun-27	ATM withdrawal 97505		100.75	1,049.70
Jun-27	Check 505 - Car insurance		110.00	939.70
Jun-28	Deposit - Belated birthday gift	187.50		1,127.20
Jun-29	ATM withdrawal 99506		37.50	1,089.70

Using the documentation from the bank and from Melanies check register, construct the bank reconciliation statement for June 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.

Melanie Smythes Bank Reconciliation for June 29

Ending balance per bank statement, June 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, June 29