Jun 282011

Editor’s note: This is a guest post by my husband. Hopefully it will take the mystery out of reconciling your bank account, and give you some possible solutions for when you’re stuck with a balance that’s off by 51 cents, and you can’t figure out why. I usually deal with this problem by stomping around and muttering, and eventually I get so frustrated that I turn the check register over to my husband, and he figures out my mistake in a matter of minutes. See? He knows what he’s talking about!

“The Bank Screwed Up My Checking Account!”

This is a comment I heard many times over when I was in the auto repair business. Usually it was a reply from a customer when I called to tell them their check bounced. Other times, it was their way of telling me they couldn’t pay for the work on their car (because they didn’t have as much money in their account as they thought they had). After telling me the bank screwed up their account, they usually followed with a few angry comments and cursing about how “First National better clean up their act or I’m taking my money elsewhere!”

I’m willing to bet a steak dinner that most of these “bank screw-ups” were more likely due to unintentional overdrafts. These happen often to people who run their balances on the edge, don’t balance their checkbook, and have automatic withdrawals, ATM debits, and/or more than one person using the account. Overdrafts are expensive and damaging to your credit and reputation. More often than not, the bank isn’t the one making the error.

Many people don’t know how to reconcile their checkbook. It’s a relatively easy process, but sometimes seems impossible when it won’t balance. Hours have been lost in trying to find errors. From years of handling multiple accounts, I’ve come up with what I think may be the top ten causes of errors. Not listed in any particular order, they are:

1. Failure to record non-check transactions. With ATMs, automatic withdrawals, and other forms of debit that don’t require writing a check, it’s very easy to forget to post a transaction. The result…less money than you thought you had. A more pleasant form of this error, of course, is failure to record a deposit.

2. Failure to record a check. This one can easily get you, because the check you wrote and forgot to record may have been the one that puts you over the edge. Be sure to follow your check sequence and, if a number is missing, leave a space for it in your register until you have a chance to investigate.

3. Transposing numbers. Recording a $591 check in your register as $519 is an easy mistake to make.

4. Illegible printing. Sevens and twos are easily mistaken, just because a person is in a hurry when writing. Messy zeroes become sixes. Other numbers can also easily be mistaken. This can make your carry forward balance off, or cause the bank to misread your numbers and not debit your account properly.

5. Add-tracting. Debits (withdrawals or fees) must be subtracted from the balance, while deposits or credits (such as interest) must be added. It’s very easy to slip up, especially with different calculators that require the add or subtract button to be pushed before or after the key entry. If you don’t run a tape, be sure to total your columns once, twice, or three times. When in a hurry, you may get three different answers. Time to slow down.

6. Laziness. Some people don’t record the cents for each transaction, figuring its not as important as getting the whole dollars written down. This makes it impossible to balance the checkbook.

7. Putting off reconciliation. Delaying the process makes errors harder to find, not to mention that bank charges, forgotten withdrawals, and other ways money sneaks away are not considered when looking at your imagined balance.

8. Two mistakes are better than one… at throwing you off track, that is. The longer a checkbook goes unbalanced, the more chance of multiple mistakes. When this happens, it doesn’t do any good to look for an error in the amount of the difference in the balance. Now, you’re really in the dark as to what you’re looking for, and don’t even realize it.

9. The double, triple, and quadruple whammy. You write the amount of $51.17 in the upper line, then you spell out Fifty One Dollars and 70/100 cents on the next line. When there’s noise and confusion in the air, what you were saying to yourself in your head lost something in translation (just going from one line to the next). Now, which amount will the bank take out of your account? Hopefully, at least one of the numbers matches the register receipt, which you tuck in your pocket to record later, because your spouse has the checkbook. You just took a blank check along with you so that you could both use the account. It still may be difficult, because the cash register receipt 6 kind of looks like an 8.

10. The ongoing problem. So you’ve been careful to record each transaction, carefully writing down the numbers, and haven’t missed a thing. The problem is that three weeks ago you carried down your balance and added incorrectly, resulting in a daily balance that’s off by the exact same amount for weeks.

The first step to eliminating mistakes is to keep a clean register where you record your transactions. Never keep an extra amount of money in your account that you don’t record as an invisible safety net, to fool yourself into thinking you have less money so you don’t run out (people actually do this, similar to setting their clocks fast so they get places on time). Record everything to avoid mistakes, errors, and omissions. I’ve photocopied a sample register from Reginald Wright (I’ll call him Reggie).

Notice how Reggie records each transaction on two lines, to allow room to write a short detail of what the transaction was for. Reggie also has used the abbreviations at the top of the register, and isn’t missing any check numbers (so far). On June 1st, Reggie reconciled his check register and struck a balance. Notice how he drew a double line under $3,135.98 as a clear reference point? As he was reconciling, he checked off each item from the bank statement. He’s only written three checks in the past nine days, but has seven transactions. Reggie draws a line for the cents column if the transaction is for an even dollar amount, because he found that he sometimes makes a tail at the top of his zeros that looks like a six and trips him up. He likes to carry his balance down for each transaction, and double checks the running balance with his calculator. How does your register look? Does it balance each month?

The balancing act. If you’ve never balanced your checkbook, you have the same options as anyone starting from scratch. You can go back to the beginning of time and take a statement at a time (maybe one per night). If you’ve had the account for years, this is painstaking. You could cancel the account and start a new one, leaving enough money in the account until all old checks clear. But maybe the best option in a low activity account is to get your latest statements since your last balance and start working at it. If you don’t have a beginning balance in your checkbook, you would have to take the bank’s word for it. Fortunately, the errors are usually not the bank’s and this can be a viable option. For purposes of this article, I’ll assume you have previously balanced the checkbook and are now looking for a recent error that is causing trouble.

Now, grab your pencil, eraser, calculator, checkbook, check register (where you have hopefully recorded your transactions), the bank statement, and a reconciliation form (most bank statements have this form on the back for your convenience). Here is a printable form you can use if needed (click to enlarge and print):

The form has a step by step process for balancing your account. In step one, remember how Reggie had checked off each transaction against his statement? In this step, he would then enter any deposits or withdrawals that weren’t shown on the statement (any unchecked boxes in the register up to the date of the statement) on this reconciliation form. These are your outstanding transactions that will most likely show up on your next statement. The outstanding deposits and withdrawals are totaled on line 2.

Line 3 is where you enter the ending balance from the bank statement. This is the amount the bank shows in your account on the statement date.

Now you should carry the line 2 outstanding deposit figure to line 4, and the line 2 outstanding withdrawals to line 5. Add lines 3 and 4 for the sub-total, and subtract line 5 from the sub-total for the balance on line 6.

The next important step is item 8 at the left. You need to find any withdrawals from the statement that are not listed in your check register. These will usually be service fees, forgotten withdrawals or ATM transactions, or automatic withdrawals that are not yet recorded. The withdrawals that are not recorded in your check register need to be deducted from your running balance for a register balance that should match line 6 on the reconciliation form. If not, the fun begins now!

Finding the errors.

1. Many times when the balance in your register doesn’t match the reconciliation form, you’ll find amounts in your check register that don’t match the bank statement. These are usually due to amounts incorrectly recorded in your register. Check each amount in your register carefully against the bank statement entry. You may even find that the bank withdrew an amount different from what you intended to write the check for. This happens when the writing on the check isn’t clear, or in rare cases a bank error. You might make a deposit with some currency and coin, and if not added correctly, the actual amount the bank personnel adds to your account will be different. Every entry in your register should match the bank statement perfectly.

2. Re-add the columns in your register. Be careful to add deposits or credits, and subtract payments and withdrawals. Keep a running balance at short intervals and double check. Most mistakes are adding errors.

3. Double check to be sure all items in the register and bank statement are “checked” so you have nothing outstanding that isn’t recorded.

4. Another trick is to take the difference between the register balance and the reconciliation balance (line 6) and try to divide it by nine. If nine divides into it evenly, you may have a transposed number (for instance, you wrote a check for 216.93 and recorded it as 216.39). The difference of .54 is evenly divisible by 9. Another example ($1349.62 versus 1439.62) would be a difference of $90, again evenly divisible by 9.

5. If the amount that you’re off by has an even number of cents, try dividing it by two and looking for a transfer that matches half of the amount. In other words, if you are off by $44.86, divide by two ($22.43) and look for a transaction in the amount of $22.43. If you find a $22.43 transaction in your register, see if you possibly added when you should have subtracted or vice versa. Adding a $22.43 check to the balance in the register will result in a register balance that’s $44.86 too high. Subtracting a deposit of $22.43 to your register balance when it should be added results in a balance that’s $44.86 low. See what I mean?

6. Know your weaknesses and writing habits. If your written 0 has an upper tail and sometimes looks like a 6, be on the lookout. Know that being six off either way in a column (depending on whether it’s a debit or credit) indicates the possibility of this mistake. Conversely, a six that looks like a zero will put you off by four. When you’re in a hurry and write a 7, it may have a small tail at the bottom as your pen was approaching the next numeral to be written. Now your 7 may look like a 2 and trip you up. This mistake will result in a column calculation error of five, one way or the other. So if you’re five cents off, fifty cents off, or five dollars off (you get the picture), look for what was intended to be a 7 and looks like a two. Sixes that look like eights (and vice versa) will make a bottom line column addition or subtraction error of two (two cents, twenty cents, twenty dollars, etc).

I’m sure that accountants have many more tricks and shortcuts for finding errors, but these ideas will get you started. The more you do it, the better you’ll get. The key is patience, organization, neatness, persistence, and no procrastination when the bank statement arrives. Most accounts are accessible online, allowing you to have access to your transaction information at any time. An electronic check register, if kept up to date, helps eliminate some of the human error aspect. Computers find it difficult to make mathematical errors, but the reliability is only as good as the information you feed it. Either way, the time to start is now. The sooner you strike a balance and the more often you reconcile, the easier it gets!