Reconciling Your Bank Statement
Posted by John Draper | Filed under Money Management
I am totally astounded at the number of people who never reconcile their bank statements. People, do you know that banks make mistakes? I got this email from C who said:
I’m in a mess because the bank accidentally credited my account with $1,300, and I spent it. Now they want their money back. What should I do?
Pay up, C.
I want to believe that C wasn’t dishonest, but really didn’t notice that there was more money in her account than there should have been. Lots of people don’t look at their statements, but just go by the balances, and they are always at risk of running into trouble. When I ask people why they don’t reconcile their bank statements, they say it’s because they don’t know how. So here’s the lesson.
Once a month you’ll receive a listing of all the transactions on your account for the previous month. The worst thing you can do is stick your bank statement in a drawer, ignoring it. Instead, stick it in your end-of-month-bills file. At the end of the month, gather the statement, your chequebook register/accounts book and receipts for the previous month. Sit down, sharpen your pencil and haul out your calculator. You are now ready to reconcile your bank statement.
All money coming out of your account are called debits. These include cheques written, debit card purchases, ATM cash withdrawals, fees and charges. All money put into your account are called credits. These include things like deposits you make and interest you earn. When you reconcile your account you are simply accounting for each debit and credit that occurred during the previous month and trying to find any items that you didn’t know about or that the bank didn’t know about (as of your statement date) and list them. You’ll also find any mistakes made.
1. Grab a blank piece of paper. At the top of the paper on the left side write the title MY RECORDS. At the top of the paper on the right side write the word BANK. Under the title MY RECORDS, write the amount your chequebook register says you have in your account as of the date of the bank statement. Let’s say your statement is for the month ending June 30th, then you would write under MY RECORDS the balance you have in your cheque register for June 30th. If you have no items for June 30 in your register, then use the preceding date. For example, you might have paid a bill on June 28th and then not used your account again until July 3rd. Use the balance you show for June 28th and write it on your paper under MY RECORDS. Let’s say it is $1654.36 just as an example.
2. 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.
3. Compare and check off all of the items in your register against all of the items on your bank statement that match.
4. Under MY RECORDS list any items from your bank statement that you forgot to note in your own records. You may have forgotten to add in that cheque for medical reimbursement you deposited on the way to the movies.
5. Under BOOK, list anything in your chequebook register that doesn’t appear on your statement. It is possible that the cheque you wrote on June 28th has not yet cleared your account. There might be several cheques that have not cleared.
6. Total the two columns. Remember: If it is a credit (i.e., a deposit), you add it to your balance. If it is a debit (i.e., a cheque you wrote), you subtract it from your balance.
7. If the two amounts are the same, you have balanced and your job is over. If there is a difference, you know something is wrong. So you’ll have to dig a little deeper. You may have miscalculated (if the difference is divisible by 9, you may have reversed your numbers). Or there may be a mistake on the statement or in your records. Verify everything until you balance.
8. Make any corrections/additions/deletions to your chequebook register to bring it up to date.
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October 30, 2008 at 11:40 am
This is great advice as usual, Gail. Banks DO make mistakes.
I used to always reconcile my bank statement. Then I started using YNAB software to track my budget and it and my bank account always balance against each other (and if the don’t I need to figure out why) and since I enter things into YNAB every coupled days, I can easily tell if something is out of whack with my bank account.
If my bank deposited $1300 into my account in error, I would notice immediately.
October 30, 2008 at 12:10 pm
Good stuff!
I am “bad” I don’t do the ENTIRE reconcilliation process, but I do carefully check it over and review anything anomolous with my husband.
About banks making mistakes… I been victim to LOTS of them over the years, the most impressive was just last year when I got my bank statement to see a deposit of over $48 THOUSAND!!!!! I phoned imediately (I didn’t want to be liable for that money, taxed on it nor accused of laundering or something!) and they fixed it. SURE it looked nice on the balance, but it was seriously alarming that that much money could so easily be waylaid by the bank!!!!
October 30, 2008 at 12:48 pm
Yes, it is very important to check – and not just your bank statements, check all of your bills – look carefully at your cable, phone, cell phone and internet bills. I’ve caught loads of mistakes on these. Sometimes I wonder if they actually do it intentionally! And I’ve found mistakes on my credit card too – either fraudulent or mistaken charges, or sometimes a restaurant that accidentally bills you twice. Also, you can ask your bank to reverse charges that you are not happy with.
October 30, 2008 at 1:53 pm
Another yes for the importance of reconciling!
I was reconciling my credit card statement yesterday, and rather than having “bank error in my favour” (as Monopoly coined it), someone at AMC neglected to cancel my purchase (I didn’t authorize it and said I wasn’t prepared to pay the amount for the tickets and asked for my credit card back once I saw the total – it was supposed to be a morning matinee film!).
Obviously, they didn’t void it – but by tracking my expenses, I’m able to be aware of all charges that should be appearing, and called my bank last night to get this resolved.
October 30, 2008 at 3:15 pm
I don’t always reconcile my bank statement, too lazy & tired sometimes, but I always read it over.
I do, however, check online banking every single day and compare it to my checkbook(on excel) daily. This keeps it in my face and on top of it so I’d see sooner than later if there’s errors. (Of course, the printed statement may contain errors the online doesn’t have).
October 30, 2008 at 4:13 pm
I check my accounts daily online and load my transactions once a month into Quicken (which has a reconciling process built in).
We’ve been double-billed before due to debit machine mishaps, and I’ve had incorrect restaurant bills fixed on my credit card due to incorrect tips entered. We kept our receipts so it was fixed up right away. If you don’t, the credit card company or bank might wait until the business submits their paper receipts before fixing it for you.
My dad once authorized a $1000 grocery purchase because he didn’t check that the amount was correct on the debit machine before putting in his pin number (the decimal was in the wrong spot). The cashier noticed it right away and reversed the transaction, but it could have been a big mess if she didn’t.
I always wait until the debit keypad says approved before handing it back to the cashier. Too many times I have seen it go through but they ran out of paper or the thing jams, so they want to do it again.
Keep your receipts until you see your purchases on your statements, mistakes might only happen once in a blue moon but they can save your butt when they do!
October 30, 2008 at 7:08 pm
Excellent advice Gail.
As a semi-Luddite, I do check my ‘bank statement’ each day online, but have used a 3 column account book entering the debits and credits. I’ve kept track this way for many years. It works for me.
Haven’t found many banking mistakes, but was surprised one day to see that $10.00 had been taken out of my account after stopping in to the bank to get cash. Seems the teller gave me $10.00 too much and took it back out of my account. I think they were surprised when I phoned pronto to check it out .
I’ve found more mistakes at the grocery store when my groceries are being scanned…..
October 30, 2008 at 9:38 pm
I find it very sad that so many people don’t do this regularly. Banks don’t get a penny of my money, fees or otherwise. I’m not about to let them make any mistakes, especially in their favour.
October 31, 2008 at 12:47 pm
I suppose it says something unflattering about me that I’d see this and think — “do people actually *do* this?!” … ‘cuz I don’t.
I gawk at my online banking transactions so often that I figure I’ll notice anything unusual. Well, that, and that as long as there’s about as much money in there as I expect, I figure things are alright.
But this week I’ve tried futzing around with Quicken again. I still haven’t got it 100% figured out — transferring between accounts without messing everything up has still got me stumped. Last night I decided to tackle “our” accounts, after trying things out first on “my” accounts.
I printed out some analysis of “our” chequing, spending and credit card spending. My partner noticed a $75 charge to a guitar shop. Well, “we” don’t play guitar, but “I” do — and I’d recently paid $75 to have my bass guitar restrung. Or so I thought. Turns out I pulled out the wrong credit card to make the payment, and it slipped right past her when she was paying the bills a month ago.
So, that extra set of eyes on the expenses helped catch it. Welll, to be honest, it was her set of eyes — I missed it, too. But the extra step of taking a sober second look at the moneys turned up something that would’ve otherwise slipped by into history.
Good for us, sucks for me. Now I owe “us” $75. Poop.