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The Nitty Gritty: Balancing Your Checking Account

The Nitty Gritty: Balancing Your Checking Account

Keeping track of your checking account is a good idea for several reasons. So, how do you balance a checking account? Regardless of whether you do it electronically or on paper, the process is the same.

You start by entering the beginning balance. As you spend money (via debit card or check), make a withdrawal of cash (by going in to the bank and withdrawing money or by using an ATM), or make a deposit (in person or via direct deposit) you enter the following information:

  • The date of the transaction
  • A description of the transaction (the name of the place you spent the money at, who you wrote a check to, or that it was a withdrawal or deposit)
  • The amount of the transaction
  • A notation about the transaction, if desired. (This is where you can enter a category or other note that explains what the transaction was for.)
  • If it’s a check, enter the check number. Otherwise, enter something like “DEBIT” (when you spend or withdraw money) or “DEP” or “CREDIT” (when you make a deposit).

Then you add the amount you entered to the beginning balance if it is a deposit, or subtract the amount from the beginning balance if you have spent or withdrawn the money. (If you’re using a program, the program will do the addition or subtraction for you.)

The result is the new current balance, which you’ll use to add or subtract additional deposits or withdrawals from. Repeat this process whenever you use your checking account.

It’s not as complicated as it sounds. It’ll look something like this example:

sample account

At the end of the month, you’ll get a statement from your bank (either online or in the mail.) This is where you reconcile your records with the bank’s records. (If you’re using a program, there’s usually a feature that will help you do this.)

Start by finding the date in your records that’s the same as the statement date (or just before that date, if you don’t have a transaction on that date.) Note the last current balance on your account for that date and compare it with the ending balance on the statement. See if they match up. If they don’t, don’t worry. It probably just means that you have transactions that have not yet been processed by your bank, or that you have some bank charges or interest to enter. We’ll worry about that in a later step.

Next, compare what the statement says to what you’ve entered previously, checking off all of the transactions on the statement to be sure that they match what you entered and checking them off in whatever you’re using to record your transactions (either paper or a program.) If you’re using a program, there’s usually a reconcile feature that will help you do this.

At this point there shouldn’t be too many transactions that aren’t checked off. Take a look at your bank statement to see if there are any fees that you haven’t entered in your account. Enter them, and check them off both places. Subtract the total of these fees from the current balance you are reconciling with.

Now add any interest that the bank might have paid you, check it off both places, and add that amount to the current balance you’re reconciling with.

If everything has been checked off at this point on both your account and your statement, this new current balance should match the ending balance on your bank statement.

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This post is part of a series. See what everyone should know about personal finance for links to additional posts.

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View Comment (1)
  • very interesting comments made .
    i think in todays climate doing the above is very important as how many times do we forget what we have withdrawn from the bank?

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