Believe it or not, most people used to sit down with a paper bank statement and make sure their check register reconciled to (matched) the statement every month. That personal habit seems to have died with the advent of Internet banking. Doing it can save a lot of headaches, though, so maybe we should re-think the idea. Monthly bank reconciliation is a requirement for businesses as a cash management tool.
Why You Should Do It
The main benefit of reconciling your bank statement is to make sure that you and the bank both have the same amounts and the same transactions recorded. It's a good way to catch bank errors (they do occur), unexpected bank fees, unauthorized charges to a debit card, and items you may have forgotten to record in your checkbook or debit register. Yes, you will catch those things if you pay very close attention to your transaction register at the bank's web site. However, if you rely solely on the transaction register at the web site, you will probably overlook something important.
What Can Happen if You Don't Reconcile
What if you write a $300 check, for example, and the recipient waits three weeks or three months to cash it? The bank has no record of that check until it's actually cashed, so it won't show up in their transaction register. Will you still remember that check is out there two or three months down the road? You will if you keep a check register and balance it to your bank statement each month. Otherwise, chances are good that you'll have an ugly surprise when that $300 check suddenly clears your bank account. ATM fees and unrecorded debit card purchases account for the vast majority of unpleasant surprises in personal checking accounts and unnecessary expenses in personal budgets.
Deposit discrepancies between bank balance and checkbook balance often occur in business bank accounts and occasionally in personal accounts. Human error is most often the cause in these cases, as a result of someone reading the cents incorrectly on a check. Transfers from one account to another can also throw off the balance of available funds. If you need to transfer money from savings to checking, for example, your checking account might have a smaller balance than you think if that transaction isn't actually completed on the bank's end.
Taking a peek at the bank's transaction register isn't sufficient, especially if you aren't diligent about recording your purchases in your own check register. It isn't enough to simply check the balance, either, to confirm that your mental tally is "about right." The bank's balance would look "about right" if one payment you made hadn't yet cleared the bank but an unauthorized debit for a similar amount was charged to your account. If the missing payment cleared the bank the next week, you could have an overdraft. While bank reconciliation is somewhat optional for a personal bank account, it is a required final step in a business bookkeeping cycle. If your book balance does not reconcile to the bank balance, your business books are not actually balanced, and that could lead to problems with the auditors or even the IRS.
Bank Fees and Errors
Banks have become experts at finding new fees to assess on checking account transactions. Will you notice if your bank charges you with a couple of new fees, tucked in between other transactions in the web-based register? Probably not. But you'll definitely notice them if you reconcile your checkbook to your bank statement every month. Living, breathing humans enter the data from your check into the banking system, and they do make mistakes. If you don't reconcile your bank statement, you'll never know if you paid a little extra to the utility company or newspaper boy...or the bank.
- Example of business bank rec software
- Example of an inexpensive spreadsheet system
- Capital One. "Balance Your Checkbook Today for a Better Tomorrow." Accessed March 19, 2020.
- Oklahoma State Department of Education. "Tracking Your Money," Pages 4-5. Accessed March 19, 2020.
- Office of the Comptroller of the Currency. "How Can My Account Be Overdrawn When I Just Made a Deposit?" Accessed March 19, 2020.
- Consumer Financial Protection Bureau. "How Do I Get My Money Back After I Discovered an Unauthorized Transaction or Money Missing From My Bank Account?" Accessed March 19, 2020.
- Community 1st Credit Union. "Know Your Checking Account," Page 1. Accessed March 19, 2020.
- St. Paul Youth Resources. "Understanding Your Bank Statement," Page 1. Accessed March 19, 2020.
Cheri Dohnal has written professionally since 1978. Her publishing credits include "The EA Journal," Rootsweb Review, Historysavers, eHow and numerous print publications. A graduate of Texas Tech University, Dohnal has enjoyed a successful parallel career as a licensed tax accountant and published book author.