A Simple Exercise in Reconciling a Bank Account

This simple exercise will help you learn how to reconcile your checking or savings register with your bank’s monthly statement. It also explains why, oftentimes, the bank ending balance is different than your register balance. A quick and simple reference list is posted at the end for you to print and use as needed.

Suppose you opened a new checking account at SnowBank on December 15, 2016. You deposited $300 the day you opened the account. During the month of December, you had the following transactions:

1. December 15, you wrote check #101 to Lite Company for utilities in the amount of $63.25.
2. December 17, you wrote check #102 to SnowBank for your car payment in the amount of $212.45.
3. December 22, you made a deposit to your account in the amount of $600.
4. December 24, you wrote check #103 to Wintry Property for rent in the amount of $450.00.
5. December 26, you used your debit card at Chuck’s Grocery for food in the amount of $63.24.
6. December 26, you used your debit card at Sunrise Deli & Gas for gas in the amount of $23.10.

You recorded each of these transactions in your checking account register as they occurred as shown below.

On December 28, 2016 you received your bank statement in the mail as shown below. The date on it is December 26, 2016. The first thing you note is that the bank shows your account as having an ending balance of $561.06 and your register shows a balance of $87.96. Which one is the right balance and why?

Let’s reconcile your register with the bank’s statement and then we will find out why. Download and print the following two items:

Checking Account Register

SnowBank Statement of Accounts

Complete each step listed below one at a time.

1. If your checking account is an interest-bearing account and your statement shows that your account has earned interest for the month, enter the interest in your checking register as a deposit and add the amount of interest shown on the bank statement to your register balance. This is a non-interest bearing checking account, so there is no interest.

Register Balance + Interest = New Register Balance

$87.96 + $0 = $87.96

2. If your bank charges you a monthly service fee, enter the service fee in your register and subtract the amount of the service fee from your register balance. This is a free checking account so there is no service fee.

Register Balance – Service Fee = New Register Balance

$87.96 – $0 = $87.96

3. Go down through the list of deposits on the bank statement and for each deposit listed on the statement, place a checkmark in the C column (C stands for Cleared) beside the corresponding deposit in your register. If a deposit is listed in your register but it is not listed on the bank statement, write the amount of deposit in a column on a piece of scrap paper under the heading of Uncleared Deposits. Add up the Uncleared Deposits.

Uncleared Deposits
$0

4. Go down through the list of withdrawals (subtractions) on the bank statement and for each subtraction listed on the statement, place a checkmark in the C column beside the corresponding withdrawal in your register. If a withdrawal is listed in your register, but is not listed on the bank statement, write the amount of withdrawal in a column on a piece of scrap paper under the heading of Uncleared ClearWithdrawals. Add up the Uncleared Withdrawals.

Uncleared Withdrawals
$450.00
+$23.10
$473.10

5. Add the total of Uncleared Deposits to the Ending Balance on the Bank Statement. These are deposits that you have made which the bank has not recorded on their statement. They have not cleared the bank.

Statement Ending Balance + Uncleared Deposits = Answer

$561.06 + $0 =$561.06

6. Subtract the total of Uncleared Withdrawals from the answer you got in Number 5. These are withdrawals that you have made which the bank has not recorded on their statement. They have not cleared the bank.

Answer 5 – Total Uncleared Withdrawals = Actual Balance

$561.06 – $473.10 = $87.96

7. Compare your answer from Number 6, Actual Balance, to your New Register Balance. They should match. Congratulations – you have just reconciled your checking account.

So why was the Bank Statement’s Ending Balance different from your register balance? We found two withdrawals that you made from your checking account which had not cleared the bank. What this means is that the bank had not received or recorded these two withdrawals. This happens a lot with handwritten checks because the person or company who receives the check may not cash it immediately. They may hold it for days, even weeks, sometimes. In this instance, Wintry Property had received a check  from you but had not cashed it as of the date and timeof the Statement printing. Until the check is cased, your account balance at the bank will show a larger amount that your check register does.

The other withdrawal that had not cleared the bank was made to Sunrise Deli & Gas for a gas purchase made using your debit card. Sunrise Deli & Gas does not submit charges for gas purchases on a daily basis, but does it every other day. The charge you made on December 26, the day the statement was created, was not submitted to the bank so the bank did not have record of it when it created the bank statement.

When withdrawls have not cleared the bank, your bank acount will show a higher balance than your checking register. This does not mean you have more money to spend. You have authorized payments to people by writing the check or submitting your debit card for purchases and you are obligated to fullfill those payments. If you use the money you have authorized as a payment to someone for a payment to another party, you will overdraw your account once all of the charges are submitted to the bank for payment. The bank may or may not pay all of these charges on your behalf. Furthermore, they may charge you a fee for the overdrafts, putting your checking account further into the negative numbers.

It is important to keep an accurate record of your deposits and withdrawals and know that the balance in your check register is the correct balance. Do not rely on the bank’s balance as you may wind up spending money you already committed to pay to someone else.

The other reason to keep careful record of your transactions is so you can tell if there is an error in your account. Perhaps a company overcharged you or someone else used your debit card or wrote a check from your account. If you keep good records, you can prove this to the bank so you won’t have to pay the charge.

You can use software to keep track of checking and savings account. Good personal finance software has a reconcile feature built in and saves you the trouble of doing the math yourself. Of course, you still have to enter all of your transactions timely and accurately to make the best use of the software. Money Plus is free to download from Microsoft.

Here is a quick summary of the basic steps to reconcile a bank account (checking or savings). If you keep accurate records, it should only take you a few minutes each month to reconcile your account. Click the title to print a copy of this summary.

Steps to Reconcile Your Checking or Savings Account to Your Monthly Bank Statement

1. Add the interest earned for the month, if any, to your register balance.
2. Subtract the service fee for the month, if any, from your register balance.
3. Total all the uncleared deposits.
4. Total all the uncleared withdrawals.
5. Add the total of uncleared deposits to the Ending Balance on the Bank Statement.
6. Subtract the total of uncleared withdrawals from your answer in Number 5.
7. Compare the answer to Number 6 to your register balance. They should be the same.