How to Reconcile Checking Accounts: A Step-by-Step Guide

If you manage a personal checking account, you likely understand the importance of keeping track of your balance, making sure there are sufficient funds available to avoid overdraft fees, and reconciling your balance once per month. To reconcile your checking account, you compare it with the ledger or bookkeeping record to make sure they match. But what are you primarily doing when you reconcile your checking account? Read on to discover more about reconciling checking accounts and what to do if things get tricky.

What is a checking account?

A checking account is a type of financial account that lets you make deposits and withdrawals using a debit card or checks. The money in a checking account is used for making payments and is typically not invested. You can use a checking account to pay bills or receive payments.

With many banks, you can open a checking account for free and be able to access your funds at any time – although you may have to pay small fees for certain transactions. Depending on your financial situation, you can open various types of checking accounts.

Your checking account balance is typically reported on a monthly basis and is listed on your bank statement. You might also have a variety of other statements related to your checking account that you need to reconcile on a quarterly or annual basis. 

Typically, checking accounts are interest-bearing and offer a variety of ways to earn interest.

How to reconcile a checking account

Many people prefer to reconcile their checking account online, which is typically easier than doing it manually. To do this, you log into your bank account, select the “Transactions” tab and then click on “Reconcile.” 

Next, you select the date range for which you want to reconcile your account. This can be any one of the following: the current/previous month; the current/previous quarter; the current year to date (YTD).

In general, you have to take three main steps if you want to reconcile your checking account:

1. Identify the ledger and the bookkeeping record.
2. Compare the ledger and bookkeeping record.
3. Update and correct the ledger.

Tips for reconciling your checking account

One of the best ways to ensure that you’re reconciling your account accurately is to keep track of your spendings and deposits in a separate notebook. You can record your spendings and deposits in a daily, weekly, or monthly log, or even use a spreadsheet for more efficient tracking. If you’re tired of doing everything manually, try using specialized apps. This will help you keep track of your account activity and allow you to reconcile your account with greater ease. 

You should always check your account for accuracy as soon as you receive your bank statement each month. If there’s anything you don’t understand, contact your bank as soon as possible to correct the error and prevent it from occurring in the future. 

Be sure to include the date of each transaction. This will make it easier to reconcile your account.

Why is reconciliation important?

Reconciliation refers to the process of comparing your checking account with the ledger or bookkeeping record. If everything matches up, you can be almost certain that your account is accurate and that you have a valid record of all transactions. That being said, you’re tax audit proof. 

Doing this every month will ensure that you’re aware of any potential issues as soon as possible and that they can be resolved quickly and easily. If, on the other hand, your account doesn’t match the ledger, it’s likely that you have some type of error.

Confirming the transfer of funds

When you’re reconciling your checking account, you should check the transfer of funds to make sure that the amounts are correct. You can do this by looking at the “to” and “from” fields on each transaction. You might also want to check the “amount” fields. The transfer of funds can be confirmed by looking at each entry and making sure it corresponds to the amount transferred to the account.

Confirming deposits and payments

Make sure that the amounts listed on your checking account match the amounts on each deposit or payment. For example, if you deposited $200 in cash into your account on Wednesday, you should make sure that the amount of the deposit on the Wednesday transaction matches the $200. 

You should also verify that the amount of the payment matches the amount being paid. For example, if you paid $50 to your utility company on Monday, make sure that the amount of the payment matches that $50.

Confirming the overdraft balance

Don’t forget to confirm the overdraft balance. The overdraft balance is the amount that you’re overdrawing from your account. You can do this by looking at the total balance of your account and the amount of the overdraft. 

You might also confirm the overdraft amount by looking at each transaction to see how much money was withdrawn from the account due to overdrafts. 

If you’re auditing your account, confirming the overdraft amount can be done by looking at the interest charged on overdrafts in the account.

Conclusion

Checking accounts are an important part of modern life, and reconciling them is an essential part of maintaining financial health. The more you understand the process and know what to look for, the easier it will be. In short, the best way to ensure your checking account is reconciled correctly is to confirm the transfer of funds, deposits and payments, and the overdraft balance.

Frictionless reconciliation is possible with automated software. Synder is an all-in one source of truth about your e-commerce or SaaS business that automates a great chunk of manual work, offers flawless reporting and makes reconciliation a one-click process. Let Synder do the work for you!