Finance: Learning to Balance Your Accounts the Old-Fashioned Way

Okay, I admit it: There is really no need to balance your checking account by hand. With all of the software and online options available, the ability to maintain your balance with pencil, paper, and calculator is no longer required.

Nonetheless, knowing how to balance your account the old-fashioned way has its advantages. Even if you never plan to do the math yourself, it is valuable to understand what's happening as the software chugs away, so you can more easily resolve problems when they occur.

And they will occur. It happens to everybody sooner or later.

Most bank statements include a worksheet for balancing your account by hand. Give it a try next time you receive your statement, or work through the following exercise. At the very least, check out the "Troubleshooting to Find Discrepancies" section for tips on resolving the problem when your account won't balance. These tips will help even if you're a diehard computer reconciler.

If you've never reconciled your checking account, or if you used to but it's been a while, now is the perfect time to start fresh. Find your most recent account statement and use its opening balance and the transactions listed on it to begin your new reconciliation system.

You'll need list

• Your most recent bank statement
• Registers for your checking account(s) and receipts or notes on unrecorded transactions
• Paper and pencil
• A calculator

The Basic Idea
To get a mental grip on how reconciliation works, remember that a checking account is a type of short-term loan. When you spend money from the account or deposit money into it, there is generally a delay of at least a couple of days between the time of the transaction and the time it is processed by the bank.

This is why you can't count on the bank's rendering of your account balance to be accurate. The balance printed on your ATM slips, shown in your account record on the bank's Web site, or given to you by the automated phone system or even a live teller is based only on transactions that have cleared the bank: The bank has no knowledge of checks you've written that the recipient has not yet cashed.

So, the best the bank can do is to tell you your cleared balance – useful information, but not enough to know whether you can take out $20 at the ATM without causing a check to bounce. Only you have all of the information to calculate your actual, up-to-the-minute balance.

To get ready to balance your account by hand, gather the equipment, records, and supplies in the You'll Need list that accompanies this section of the chapter, and prepare to reconcile.

The Basic Steps
With your materials ready, follow these steps to reconcile your bank account:

1. Check your deposits. Do all of the deposits on the statement appear in your check register? Note: Some banks list electronic deposits (for example, returns of purchases made with a debit card) not in the usual deposits section, but instead with electronic debits. If the statement shows that you have earned interest on this account, record the interest in your register.
2. Check your withdrawals. Does every withdrawal and expenditure on the statement appear in your register? You might have to check several sections of the statement for these: Checks, ATM transactions, and electronic debits, for example. If there is an account maintenance fee or you find additional ATM fees on the statement, record them in your register now.

After you have confirmed that all of the transactions on the statement appear in your register, follow these steps to calculate your account balance:

1. Record the ending balance shown on your account statement.
2. Subtract from that figure the total of all expenditures recorded in your register but not listed on your statement.
3. Add to the result of step 2 the total of all deposits recorded in your register but not listed on the statement.

The final figure should match the balance shown in your check register, as shown in this table.

Reconciling Your Account Balance

Step 1:	Ending balance shown on account statement:		$ __________
Step 2:	Total of all expenditures recorded in register but not listed on statement:	-	$ __________
Step 3:	Total of all deposits recorded in register but not listed on statement:	+	$ __________
	Your current balance:		$ __________

Step 1 - Step 2 + Step 3 = your current balance. This figure should match the balance shown in your check register.