6. Checking account reconciliation How Do You Balance Your Checkbook? Your roommate, Samuel, is embarrassed. He has never before had a checking account, but he finally opened one last month. He's standing in the doorway of the kitchen with his check register in one hand and his recently arrived bank statement in the other. Admitting that he doesn't know what to do next, he's asked for your help in learning how to reconcile, or balance, his checkbook. Being both a good friend and a student of personal finance, you've agreed to walk Samuel through the process. Moreover, knowing the value of asking and answering good questions when learning how to do something, Samuel agreed to answer your questions about the process. SAMUEL: 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? SAMUEL: 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? , but I should verify my ongoing SAMUEL: That's an easy one. I remember reading that I should reconcile my bank account 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 Samuel's latest bank statement and his 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 Samuel's bank statement and check register (account ledger). Fourth State Bank of San Francisco, CA Statement of Account Samuel Smythe September 2011 550 Angel Street San Francisco, CA Date Description Subtractions Additions Account 348596 Balance 1,446.50 9-01 Previous balance 9-01 300.00 1,746.50 Deposit Check 900 9-03 700.00 1,046.50 9-04 Check 901 696.50 350.00 25.00 9-05 ATM withdrawal 671.50 9-05 Deposit 75.00 9-11 ATM withdrawal 35.15 746.50 711.35 1,011.35 9-15 300.00 Deposit Check 902 9-18 210.00 801.35 753.70 ATM withdrawal 47.65 9-21 9-22 105.00 858.70 9-24 Deposit Check 903 ATM withdrawal 70.00 50.00 788.70 738.70 9-26 Balance $1,746.50 1,046.50 696.50 671.50 746.50 711.35 1,011.35 Date Sep-01 Sep-03 Sep-04 Sep-05 Sep-05 Sep-11 Sep-15 Sep-18 Sep-21 Sep-22 Sep-24 Sep-26 Sep-27 Sep-27 Sep-27 Sep-28 Sep-29 801.35 Samuel's Account Ledger Transaction Description Deposit Withdrawals Deposit - Payroll $300.00 Check 900 - Rent $700.00 Check 901 - Car payment 350.00 ATM withdrawal 87501 25.00 Deposit - Birthday gift 75.00 ATM withdrawal 89502 35.15 Deposit - Payroll 300.00 Check 902 - Groceries 210.00 ATM withdrawal 93503 47.65 Deposit - Stipend 105.00 Check 903 - Bookstore 70.00 ATM withdrawal 94504 50.00 Check 904 - Dry cleaning 56.00 ATM withdrawal 97505 100.75 Check 905 - Car insurance 140.00 Deposit - Belated birthday gift 225.00 ATM withdrawal 99506 37.50 753.70 858.70 788.70 738.70 682.70 581.95 441.95 666.95 629.45 Using the documentation from the bank and from Samuel's check register, construct the bank reconciliation statement for September 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. Samuel Smythe's Bank Reconciliation for September 29 Ending balance per bank statement, September 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, September 29