What Is Reconciling a Checking Account?
Understand the process of reconciling your checking account to maintain accurate financial records and manage your money effectively.
Reconciling a checking account involves systematically comparing your personal financial records with your bank statements. This process ensures both sets of records accurately reflect the same financial position. Regular reconciliation is a fundamental practice in personal finance, helping to maintain accuracy, prevent errors, and provide a clear picture of available funds. It serves as a verification step, confirming that all transactions have been correctly recorded by both you and your financial institution.
Gathering Information for Reconciliation
Before beginning the reconciliation process, compile specific financial documents. Your bank statement, typically provided monthly by your financial institution, details all transactions processed through your account during a specific period, including deposits, withdrawals, electronic transfers, checks cleared, and any bank fees or interest earned. The bank statement also presents the beginning and ending balances for the statement period.
Alongside the bank statement, you will need your personal transaction record. This might be a physical check register, a digital spreadsheet, or data from a personal finance application where you track your spending and deposits. Your personal record should contain a chronological listing of every transaction you have initiated or received, including dates, payees, amounts, and check numbers if applicable. Having both complete and accurate records from these two distinct sources is crucial for a successful reconciliation. These documents collectively provide the necessary data points to identify and resolve any discrepancies.
Steps to Reconcile
Once all necessary information is gathered, the reconciliation process begins by systematically comparing transactions from your personal record against the bank statement. Start by reviewing all deposits listed in your personal record and matching them against the deposits shown on the bank statement. Subsequently, compare all withdrawals, checks, debit card transactions, and electronic payments from your personal record to those itemized on your bank statement.
After matching all common transactions, identify any items that appear on one record but not the other. These are typically “outstanding transactions”; for example, checks you have written that have not yet been cashed by the recipient and therefore have not cleared your bank account. Similarly, deposits you have made recently might not yet appear on your bank statement if they were made just before the statement period ended. Conversely, the bank statement might list transactions you were unaware of or had not yet recorded, such as monthly service fees, overdraft charges, or interest income.
The final step involves calculating the reconciled balance for both your bank statement and your personal record. Take the ending balance from your bank statement and add any outstanding deposits, then subtract any outstanding checks or other withdrawals that you recorded but the bank has not yet processed. For your personal record, take your ending balance and adjust it for any transactions the bank recorded that you had not, such as bank fees or interest earned. If done correctly, both adjusted balances should now match, indicating a successful reconciliation.
Resolving Differences
Despite careful comparison, situations may arise where the reconciled balances still do not align, indicating a discrepancy that requires further investigation. One common cause for a mismatch is a simple transcription error within your personal record, such as incorrectly entering a transaction amount or mistaking a debit for a credit. It is advisable to re-verify all arithmetic calculations, including additions and subtractions, as small mathematical errors can accumulate and lead to significant differences.
Another frequent reason for discrepancies involves missing transactions in your personal record. This could include forgotten ATM withdrawals, automatic bill payments, or direct deposits that you did not manually record. Reviewing the bank statement for unfamiliar entries and cross-referencing them against your memory or other financial documents can help identify these omissions. While less common, bank errors can also occur, such as incorrect transaction postings or processing errors. If after thorough personal review you suspect a bank error, it is appropriate to contact your financial institution directly to clarify the issue and request a correction.
Once identified, all discrepancies should be corrected in your personal transaction record to ensure its ongoing accuracy. This ongoing adjustment process ensures your personal records consistently reflect the true financial position of your checking account. Regularly performing these investigative steps helps maintain precise financial oversight.