A Personal Finance Guide

What Does Reconcile in Accounting Terms Mean? Don’t Learn the Hard Way!

Simply put, the term “reconcile” in accounting means to match up, compare, and bring into balance what the bank, credit card company, or lender shows actually happened in your account with what you have recorded on your own records (software or written down in a registry). Another term used in place of “reconciling your account” is “balancing the checkbook.”

Why or when would these balances be different? Well, with a checking account, for example, one may write a check for a couple hundred dollars to a friend to buy his/her old computer. One would then mark in their registry the amount of the check and subtract it from the ongoing balance. Well, let’s say the friend takes the check and puts it on his/her shelf and it sits there for months. Well, when you get your checking account statements the balance is inflated because it does not show the deduction of the check amount that your friend has in his/her possession. A few months later the friend deposits the check. The month that the check clears the bank one would reconcile their account and mark that the check cleared the bank in his/her registry.

Don’t Learn The Hard Way

It is so important to personally, and with a business, to keep good records of purchases you make and checks that you write either in a good software program or in a registry. If one doesn’t, he/she can really find themselves in a pickle if times get tough.

Life is a Hard Teacher: It Gives the Test First and The Lesson Follows

When I was newly in college I learned the hard way. At the time I owned a beater for a car and it would break down on me every now and again. I only paid a couple hundred dollars for the thing, so it wasn’t that big of a deal. Well, one day in particular I took it into a shop to get repaired. It cost me a little over $200, which I simply wrote out a check to cover the cost. I knew at that moment 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 was up a few hundred dollars then I thought I actually had. So, what did I do? What any young college kid would do…spent it! Well, as you can guess, that “extra” cash that I had sitting in my bank account was really the amount that should have covered the check I wrote to the mechanic.

To make a long story short, a year later I get a summons in the mail from this mechanic taking me to small claims court. I was totally baffled! After doing a little research I found out that once the check originally bounced they sent notices to my apartment, which I moved from not long after I had my car serviced. I didn’t have any mail forwarded to my new address because I thought I didn’t give anybody that old apartment’s address.

So, what happened? I ended up settling in court and paying about twice as much as 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 booklet that usually comes with most checks people order through the bank. It will save you from any financial surprises.

Chris Webb
YOUR PERSONAL ACCOUNTANT
http://www.yourpersonalaccountant.org

Also check out our new and exciting blog http://www.lowhangingfruitideas.com and find different ways for you to utilize some simple money making ideas.