While reconciling a bank account, or “balancing the books,” may sound like something that should be reserved for banking professionals, it is the simple task of tracking the money spent from an account and making sure it is accounted for on paper. This is a surefire way to know exactly how much money is in your account.
The Bank Statement
A bank statement is a summary of all the financial activity over the course of a defined period (usually a month) in your bank account. The bank typically mails this out to its customers each month to that account reconciliation can take place. The statement will show all withdrawals, debits and deposits made on the account and will often include canceled check images or other bank business material. This document is essential in proper bank account reconciliation.
Usually anyone with a bank account, especially a checking account, will have a ledger that will act as a record of transactions made. The typical check ledger will contain spaces to fill in check numbers, dates of purchases, where the transaction was made, the amount, a place to code expenditures, a space to write in deposits and a balance that shows the current amount of money available in the account. Often, there is a place for checking off accounted-for transactions. This list of transactions is the other essential piece needed to reconcile your bank account.
The first step in reconciling an account is to match the transactions in your ledger to the transactions on the bank statement. Work your way down the list on the bank statement. If the first transaction listed in that month is a deposit for $500, then find a $500 deposit on your ledger and check it off as accounted for. Look at the next item. If it’s a debit for $23.50 at a department store, then find the matching amount at that department store on your ledger and check it off. In the case that you find a transaction on your statement that doesn’t appear on your ledger, see if you recall the transaction. If you do, then you likely just forgot to write it down and can add it. If you think it is a fraudulent charge, check with your bank.
In the case that an entry in your ledger doesn’t get checked off in the process of comparing it to the statement, then you have what it called an outstanding receipt. Often, this is the case near the end of the bank’s reporting period when purchases have been made since the statements were printed and mailed. This is no reason for concern. You will be able to check off those transactions when the next statement arrives in a month and they will likely be near the top of the list. But for those who have tight budgets and need to know how much money is in the bank at all times, there is a simple way to determine it. All of the outstanding receipts in your ledger should be totaled and compared to the difference in your ledger’s current balance and the ending balance of your statement. In other words, if your outstanding receipts equal $250, and the difference in the statement’s ending balance and your checkbook ledger’s current balance is the same, then you have a perfectly reconciled account. If this is the case, you can go forward with purchases and be confident that your checkbook ledger is correct.