The importance of being responsible with your checkbook:
Tracking your money is key to budgeting. Using software to register manual transactions, balances your account monthly, helping you budget your categories and keeping your financial goals on their targeted trajectories.
Why balance a checkbook?
knowing your account balance instant is important, however, many business pay with checks and their current statement wont reflect the true balance, meaning the balance is incorrect . Let’s say your business statement online shows a balance $450,500, but you recently sent a check to the contractor for $331,000 to build a business facility. That check hasn't been cashed yet, but you don’t realize this. You purchase equipment and software online and buy $120,400 thinking that you have $450,500 available to you. When the Contractor cashes your check the following day, it bounces because you only left $330,100 in your account after equipment and procurement purchases.
Many companies a daily checking balance for their checkbooks regularly, to help identify potential mistakes or worse, employee fraud. It provides time to take action on any mistakes before they cause more harm to your account and time to notify suspicious activities and you are held liable.
Balancing a checkbook is simple and fast, becoming part of your daily routine after doing the process several times.
Follow the steps below understand how to balance a checkbook.
Step 1: Recording your transactions
The first step: list each transaction as it occurs. include each check you write and any deposits you make, including any debit card swipes, ATM withdrawals and assessed bank fees/tips. be sure to always keep a running balance by subtracting the withdrawals and adding the credits.
Step 2: Review your monthly bank statement
Your monthly business statement should be placed aside for a few minutes to reconcile the statement to your checkbook register. Begin at the top of the bank statement and work your way to the down each transaction at a time. As you spot transactions in your log, place a checkmark in the corresponding column.
Upon completion, you’ll be able to identify through your log and see any missed information or transaction. For example, if you quickly grabbed $3,000 at the ATM one day with the intention of writing it on the log when you got to the office, but you missed to, you’d notice the transaction is listed on your bank statement, but not on your log. You can now add that transaction to your log to make the necessary adjustment to your balance.
Step 3: Check that your balances match
Prior to checking if your log balance matches the business bank statement ending balance, you’ll need to consideration the transactions that have not yet posted. To do this, begin with the ending balance that is listed on your business bank statement and add in any deposits you made since the statement was issued. Followed by subtracting from the balance any outstanding payment checks or withdrawals. The total from the statement should now equal the total from your check log.
If you don’t want to complete this step by hand, some financial institutions have online checkbook balancing calculators you can use. Allowing you to type in your statement’s ending balance and add in any outstanding payment checks and deposits. The computer will do the math for you, its brilliant.
Step 4: Address any errors or fraudulent activity
If your balances don’t equal, return and go through each transaction and use a calculator to identify arithmetic errors, as sometime you can make a mistake when you’re in a rush and or you make an error with a calculations in your head. If aren't able to locate the discrepancy, ask your bank for assistnace.
If you find charges that you did not authorize, notify your financial institution immediately to reduce your liability and to get the company’s fraud department on the case. This is especially important for debit fraud, as the Electronic Fund Transfer Act (EFTA) holds the account holder responsible for $50 when reporting happens within two business days after the loss was discovered and $500 if reporting happens between two business days and 60 calendar days after you received your monthly statement. If you wait longer than 60 calendar days, you’ll be liable for all of the money that was stolen from your account, as well as any fees that occurred because of the fraudulent withdrawal, so be sure to always report it on-time.
Step 5: Draw a line in your log
Now that you’ve completed the balancing your checkbook log, draw a line under the last transaction. I recommend you can label the space in front of the line with the date. This way, you’ll be able to quickly locate the starting point for your next bank statement when you receive it.
Step 6: File your bank statement
Although your account doesn't reveal any outstanding checks until they’ve been cashed by the recipient, there are other ways you can utilize technology and keep track of your account balance. Budgeting apps are an excellent alternative for individuals who aren’t keen on using pen and paper, and they only take a minute or two to update at the end of each day.
Other ways to keep your checking account balanced
Although online banking won’t reveal any outstanding checks until they’ve been cashed by the recipient, there is still a way you can utilize technology to keep track of your account balance. Budgeting apps exist to help as an alternative for individuals who aren’t keen on using traditional pen and paper, and they only take a minute or two to update at the end of each day.
We recommend reading MagnifyMoney’s latest roundup of the best budgeting apps: The 11 Best Free Budgeting Apps.
Once you choose a budgeting app and download it to your device, you can sync the app with your current accounts, or enter your information manually. Begin by sharing with the app your income for the month. As you make transactions, record them in the app so you know how much you have available. Some apps allow you to set up alerts that notify you when your balance reaches a certain level, thus helping you avoid incurring overdraft fees.
We hope you enjoy this short read and it help you stay on-track of a very important aspect of your personal and business checking account.
JC Shomar
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