I have found it very wise to use checks that come with a copy that stays in your checkbook. And when I use a debit card, I always put the receipt in my checkbook so I can update it later. Regardless of what check writing system you use, it is imperative that you write down all of your transactions in your check register. This is the listing pages that come as a small booklet with a box of checks. Keep one in your checkbook at all times and always write down all purchases or bills paid. Also always keep the balance in that register up to date. Don't just write down purchases and never subtract them from you balance. Keeping an up to date and accurate balance will keep you out of trouble and help you stay on that personal budget and household budget.

Usually once a month your bank or credit union will send you a listing of all the transactions on your account for the previous month and this is called your bank statement. Different banks send these out at different times each month. If yours isn't coming around the first of each month, you might want to consider contacting your bank and requesting that you be put on the month end statement cycle. It seems to be a little easier to remember to reconcile (balance) your account if you know it needs to be done at the first of each month.

When you get your statement set it in a place in the open where you will remember to check it. The worst thing you can do is put your bank statement in a drawer, thinking you will balance it later. Too many times we forget about it. So put it in a place you check often and get to it as soon as possible. Gather the statement, your checkbook and your check register along with all receipts for the previous month. Sit down, get comfortable and haul out the old calculator. You are now ready to begin the reconcilement process.

Okay, first a quick accounting lesson. It's easy so don't be intimidated. All money items charged to your account at the bank are called debits. This includes checks written, debit card purchases, atm cash withdrawals, fees and charges. All money items put into your account at the bank are called credits. These include things like deposits you make and interest you might earn. When you reconcile your account you are simply accounting for each debit and credit that occurred during the previous month. It really is easy to do.

All we are going to do is find any items that you didn't know about and any items the bank didn't know about (as of your statement date) and list them. We are also going to find any errors that you or the bank made. That is all a reconcilement is. At the end of these instructions and examples you will find the form I made with all of the example items shown on the form.

Most statements come with some type of reconcilement form. You can use this to balance your check register to your bank account statement. However, I have found that most of these forms are a little confusing. I prefer the following method. Grab a blank peice of paper. At the top of the paper on the left side write the word BOOK. At the top of the paper on the right side write the word BANK. Under the word BOOK, write the amount your check register says you have in your account as of the date of the bank statement. If your statement is for the month ending June 30th, then you would write under BOOK the balance you have in your check register for June 30th. If you have no items for June 30 in your register, then use the preceeding date. For example, you might have paid a bill on June 27th and then not used your account again until July 2nd. Use the balance you show for June 27th and write it on your paper under BOOK. Lets say it is $1654.36 just as an example.

Under the word BANK, write the final balance that your bank statement shows for that date. Again we will assume it is June 30th and as an example let's use a balance of $1525.37. Now here is where it gets interesting. Most instructions for reconciling accounts state that you should check off all of the items in your register against all of the items on your bank statement. We will do that later, MAYBE. But first we are going to do what is known as a trial balance. We are going to see if everything comes out okay and save some time and effort.

If the amount you wrote under BOOK and the amount you wrote under BANK are the same, you can quit. Everything has cleared your bank account and you have balanced your book with the bank's records. But this rarely happens. Usually there are outstanding checks and debits that have not been deducted from your bank account yet. In our previous example it is possible that the check you wrote on June 27th has not been received by the bank yet. In fact there might be several checks that have not cleared the bank yet. You will have to find them. So look at your statement and check for the last debit (item deducted) from the account. Then look at your check register (book) to see when you wrote this item. Maybe it was written June 25th. This usually means that any checks or other debits you have in your book after the 25th have not cleared the bank yet. Also, working backward from your check register (June 30th backwards), you can quickly locate any other items that are not on you bank statement. List all of the outstanding checks or other debits from your register up through June 30th on your paper under the BANK colum you have started. Subtract these items from that first bank balance you wrote under BANK and put the answer at the end of the list.

I know. Stick with me. Let's say you have a bank balance you first wrote down of $1525.37 from our example. This was the amount on your statement listed as balance. And you have three debits in your register that are not on your bank statement. You would list these three items like this: 6/25 #408 $27.50; 6/26 #409 $36.80; and 6/27 debit card $16.44. When you subtract them, you come up with a new BANK total of $1444.63. Write it on your paper. Check this against the amount you wrote under BOOK. If they are the same, you are through. Everything balances. Again, this doesn't happen too often, so lets continue on. But first, circle these three items in your check register so you can make sure and check that they clear by the end of the next month.

Next check for credits. Is there anything on that bank statement that went into your account that you did not know about until now? Sometimes there is a credit for interest or dividend earned. Let's say it is $1.22. Now this would not be in your check register because you would not know about it until you get your bank statement. Since it is already in your account, you need to add it to your books. Under the balance you wrote on your paper for BOOK ($1654.36) we are going to list interest of $1.22 and add it. The new balance becomes $1655.58 so write that down in the BOOK column under the $1.22. Also don't forget to write this down in your check register and add it to the balance. You can write it as an addtion on your next blank line in your register. You don't have to go back and add it in on June 30th. If you balance you checkbook on July 6th, then just write it in for July 6th and add it to the existing balance you show.

We now check for unknown debits. These are items the bank has charged you but you don't know about until you get your statement. Usually these are some type of fee or charge. If your bank charges you an account fee every month, then it will be listed at the beginning or at the end of the statement. Let's say in our example the fee is $5.00 per month. You would write this down next in your BOOK column and subtract it from the balance. Thus $1655.58 less $5.00 becomes $1650.58. Write this amount down in the BOOK column. Again don't forget to put this into your check register and subtract it from the existing balance if you haven't done so already.

It is when you get used to it. Go back over our example. We now have a BOOK balance of $1650.58 and a BANK balance of $1444.63. This is a difference of $205.95. If the two amounts were the same, you would be balanced and this trial balance method would be finished. And many times this small amount of reconciling will result in being finished now. And trust me, once you get used to this, you can complete this trail balance method in less than 5 minutes. But when there is a difference, you know something is wrong. So we will have to dig a little deeper.

Now this difference indicates that the bank says you have less money than your records show since the BANK balance is less than your BOOK balance. So let's do a little detective work. Check your bank statement. Is there an item for that amount on the statement? If so, then you know you forgot to write a check down in your check register. If there is not a specific item for the amount of the difference you will have to start checking each item in your check register against each item on your bank statement. Place a little check mark beside each item as you go down your register and also check the same item on the bank statement. This will take a little time so don't get in too big a hurry.

Several things could have gone wrong. Perhaps you failed to write down more than one item in your check register. Two or three checks or possibly a debit card charge or two or a combination might all total up to equal the difference. Or perhaps you made a deposit that was not added to your bank account at the bank. In our example, the $205.95 difference is comprised of the following items: 6/04 #390 for $268.95 was recorded as $168.95 in our check register. This mistake accounts for $100 of the difference. You can subtract this from your BOOK column leaving a balance of $1550.58 in your BOOK column and a difference of $105.95 to find.

Keep digging. By checking off each item in your register and on your bank statement, you notice that you used your debit card to pay a bill at the grocery store on June 16th and forgot to write it down in your check register. This item was for $102.35 and it shows up on your bank statement as that amount. So we would deduct this as : 6/16 DC (for debit card) $102.35 in our BOOK column leaving a balance of 1448.23 in the BOOK column on your reconcilement paper. Compare that with the BANK balance of $1444.63 and we have a difference of $3.60. Only this time, the bank says you have more than your book shows.

To find this final $3.60 we will have to make one more step. Since all of the itmes in your register and on the bank statement have been checked, there must be a problem with your addition and/or subtraction in your check register. Start at the first of the month and use that balance from your register. Then re-subtract each item and re-add each depost through the whole month. Check the balance after each item. Sure enough, on June 12th you had a deposit of $368.40 that you wrote in your register as $364.80. You accidentally switched places for the 8 and 4. This is called a transposition and is all too common for all of us. Write the $3.60 down on your BOOK column and add it to your book balance. Finally we have a BOOK balance on our reconcilement sheet of $1444.63 and a BANK balance of $1444.63. We are in balance. HINT: If the difference between your BOOK and BANK balances is an amount that is exactly divisible by 9, then you probably (but not always) have made a transposition somewhere. For example, if you wrote down 64 and it should have been 46, then the difference is 18. And 18 is divisible exactly by 9. In the example above, the $3.60 is exactly divisible by 9 with no remainder (.40).

Now don't forget to make all these changes in your check register. But only the changes you found that affect the register balance. We did not find any changes that we needed to call the bank about and get them to change anything. The changes that affected your register are:

 Add interest on 6/30 of $1.22

 Deduct bank fee on 6/30 of $5.00

 Deduct error on check on 6/4 #390 of $100.00

 Deduct debit card charge on 6/16 of $102.35

 Add transposition error on 6/12 deposit of $3.60

You have now successfully balanced (reconciled) your bank account. For the next month, do the exact same steps. Just be sure to first check that all of the outstanding checks that you circled the previous month have actually cleared the bank. If they haven't you need to call whomever you sent the check to and find out what happened. This will keep you from being shown as "late payment status" with that company.

Now a couple of quick notes. If you are paying for some type of monthly checking fee, look around for another bank that has totally free checking. Competition is strong in this area, and you can usually find a free checking account that does not require a huge balance be kept in your account. Also, pay all of your bills on time. This is critical. A late payment can cause someone to turn in a bad report to the credit bureau. And lenders get credit reports fairly regularly. A lender could use your credit report showing a late payment from another merchant as a reason to increase the interest rate on any variable rate or open end loan you might have. If you are using our Free Budget Plan, you should be eliminating late payments. This is just another reason you want to be sure and complete a household or home budget or a personal budget. Planning a budget and living on a budget will also make all of this reconcilement business much easier because you will readily have the information you need each month.

Good luck. It isn't as difficult as it seems. Below is what your reconcilement for June should look like, using the numbers I gave in the above examples. OS means outstanding item. DC means debit card. I suggest you print this entire article and use it as a guide the next time you want to reconcile your bank account (same as balancing your checkbook.) You can ensure that you are sticking with your household budget and are truly living on a budget and keeping track of all expenses.