Final answer:
Balancing a checkbook requires matching transactions to their effects on both the checkbook and bank balance. For example, a check not yet presented for payment should be deducted from the checkbook balance, while bank charges are deducted from the bank balance.
Step-by-step explanation:
Balancing a checkbook involves matching various transactions with their effects on both the checkbook and bank balance. To reconcile differences, it is important to understand how different transactions impact these balances:
- Check issued but not yet presented for payment - Deduct from checkbook balance
- Bank charges - Deduct from bank balance
- Check is deposited not yet credited - Add to checkbook balance
- Bank receives a payment on behalf of the company - Add to bank balance
Managing money effectively via a checking account helps avoid issues such as overdraft and the associated fees. The regular reconciliation of the checkbook and bank statements is a critical financial habit.