Balancing a Checkbook, Quickly and Easily
Transcription
Balancing a Checkbook, Quickly and Easily
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 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 Copyright © Jazer Solutions, LLC Jazer Solutions, LLC 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 Copyright © Jazer Solutions, LLC Jazer Solutions, LLC 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 Copyright © Jazer Solutions, LLC Jazer Solutions, LLC 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 Copyright © Jazer Solutions, LLC Jazer Solutions, LLC 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 Copyright © Jazer Solutions, LLC Jazer Solutions, LLC 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 Copyright © Jazer Solutions, LLC Jazer Solutions, LLC 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 Copyright © Jazer Solutions, LLC Jazer Solutions, LLC 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 Copyright © Jazer Solutions, LLC Jazer Solutions, LLC 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 Copyright © Jazer Solutions, LLC Jazer Solutions, LLC 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 Copyright © Jazer Solutions, LLC Jazer Solutions, LLC Enter Checks, ATM and Debit Withdrawals in this column Enter Deposits in this column Email comments to: articles@jazersolutions.com 12 | P a g e Copyright © Jazer Solutions, LLC