Simply put, the term “reconcile” in accounting means matching, comparing, and balancing what the bank, credit card company, or lender shows. Really occurred in your account with what you have registered in your own records (software or noted in a registry). Another term used instead of “reconcile your account” is “balance the checkbook.”
Why or when would these scales be different? Well, with a checking account, for example, you can write a check for a couple hundred dollars to a friend to buy his old computer. Then one would mark the amount of the check in your register and subtract it from the current balance. Well, let’s say the friend takes the check and puts it on his shelf and it sits there for months. Well, when he gets his checking account statements, the balance is inflated because it doesn’t show the deduction for the amount of the check his friend has in his possession. A few months later the friend deposits the check. The month that the check is cleared by the bank, your account will be reconciled and it will mark that the check was cleared by the bank in your register.
don’t learn the hard way
It is very important, personally and with a business, to keep good records of the purchases you make and the checks you write, either in a good software program or in a register. If you don’t, you can really find yourself in a bind if times get tough.
Life is a hard teacher: first give the test and follow the lesson
When I was just in college I learned the hard way. I had a car mixer at the time and it would break on me from time to time. I only paid a couple hundred bucks for the thing, so it wasn’t a big deal. Well, one day in particular I took it to a shop to have it repaired. It cost me a little over $200, which I just wrote a check to cover the cost. I knew at that point that I had the money in my account to cover it. So, I didn’t give it a second thought.
A month went by and I looked at my account online and was surprised to see that I had raised a few hundred dollars than I thought I had actually made. So what did I do? What any young university student would do… he spent it! Well, as you can guess, that “extra” money I had in my bank account was actually the amount that the check I wrote to the mechanic should have covered.
To make a long story short, a year later I get a summons in the mail from this mechanic that takes me to small claims court. He was totally baffled! After doing some research, I found that once the check originally bounced, they sent notices to my apartment, which I moved out of shortly after my car was repaired. No mail was forwarded to my new address because I thought he hadn’t given anyone the address of that old apartment.
So what happened? I ended up settling in court and paying almost double the original amount! For a college kid, that was a hard pill to swallow.
Take my advice, you don’t want to learn the hard way. Get in the habit of keeping a balance in a check register book that usually comes with most checks people order through the bank. It will save you from any financial surprise.