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How to Balance a Checkbook: A Step-By-Step Guide

The concept of balancing your checkbook might be a foreign one in today’s world of electronic banking and online transactions. Balancing a checkbook goes back to the days when paper checks were more common along with keeping a record of all transactions in a paper check register.

Balancing your checkbook, or more accurately your checking account, is a way to ascertain how much money is available in the account against which checks can be written or against which debit card or electronic transactions can be made. Essentially, transactions that have not cleared the account but are in process are added to or subtracted from the current balance to determine the available balance in the account.

In the old days, balancing your checkbook was largely a paper-based endeavor. Today this can be done electronically via various apps or budgeting and accounting programs. Balancing your checking account is important for both individuals and for businesses.

How to Balance a Checkbook

There are a number of steps involved with balancing your checkbook, including:

1. Recording Your Transactions

In order to accurately balance your checking account it’s important to have an accurate record of all transactions going in and out of the account. This would include all checks written, other disbursements from your account, deposits made into the account, service charges, if any, as well as any other transactions made via the account.

2. Review Your Monthly Bank Statement

Review your monthly bank statement to see if there are any transactions that occurred that you haven’t recorded in your check register. Perhaps you used an ATM machine to get cash for yourself during the month but forgot to record this transaction in the check register.

3. Match Up Your Register and Statement Balances

It’s important to ensure that the account balance shown in your register matches with the balance on your statement. If the totals are different, which they may often be, it’s important to reconcile the two so they are in sync. This might mean adding an item from the statement to your register that you had neglected to include or that you were not aware of. Or it might mean looking into a charge that you don’t recognize. This could be a legitimate transaction from your account, or it could be one that appears in error. This could include a fraudulent transaction.

4. Deal With Any Errors or Fraudulent Activity in a Timely Fashion

In reconciling your register with your bank statement it’s important that you resolve any discrepancies in a timely fashion. These discrepancies could arise from an error, fraud or any number of other reasons. The most important reason to resolve it as quickly as possible is that your bank might have a time limit, after which they will not adjust for any differences detected.

Depending upon your bank or the budgeting and accounting software that you use, this process can often be completed online versus being the paper-intensive undertaking that it was in the past.

Why Balance a Checkbook?

There are a number of reasons to balance your checkbook on a regular basis. Here are a few:

  • Ensuring that your checking account balance is accurate and in sync with both yours and the bank’s records can help you avoid overdrafts and the costly fees that go with them. Writing a check or making a major purchase transaction with a debit card can lead to overdrafts if you forget about a check that was mailed but has not cleared. If you were to look at your balance online before this transaction is reflected, you might think there is a larger available balance than there truly is.
  • Resolving an issue with the bank is easier if you are on top of what should and shouldn’t be reflected in your account. Some banks may impose a time limit in resolving mistakes and questions you may have about a transaction, so staying up-to-date on your checking account balance is important.
  • It’s easier to verify a mistake. Sometimes a merchant or a vendor can make a mistake. If you made the payment electronically, the amount reflected might be different than what you actually paid. Balancing your checkbook and keeping accurate records of all transactions can make it easier to protest/reconcile errors with a merchant or with the bank as needed.
  • Protecting yourself against fraud. Reconciling your checkbook on a regular basis forces you to review the transactions in and out of your account. Anything that doesn’t look right is easier to catch if you do this on regularly. This can include fraudulent transactions that can occur in today’s world of electronic banking.
  • Balancing your checkbook is a tool in your overall money management and budgeting efforts. In order to track your spending and overall account balances, it’s important to know where you stand with your checking account.
  • Overall, balancing your personal or business checking account on a regular basis helps to keep you in control of your finances.

How Often Should You Balance a Checkbook?

Traditionally its been said that you should balance your checkbook monthly. While there are no hard and fast rules, doing it monthly is a good practice. Doing it more frequently is fine, but really not necessary unless its easier for you, or if you run a high number of transactions through your checking during the month.

If you let this task go too long it can become arduous, especially if you have a lot of transactions. This can make it easier to miss something, potentially causing your account balance to be off.

If you encounter a transaction that is an error or even fraudulent, there may be a time limit after which your bank will not correct the issue. You might be impacted by this if you wait too long to balance your checkbook.

Credits: Thestreet

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