Business Checkbook

One of the first things you should do when you start a business is open a separate checking account, just for the business.

Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. You should also note on the deposit slip the source of the deposit and keep copies of all slips. You should make all payments by check to document business expenses.

Write checks payable to yourself only when making withdrawals from your business for personal use. Avoid writing checks payable to cash. If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. If you cannot get a receipt for a cash payment, you should make an adequate explanation in your records at the time of payment.

Tip: Use the business account for business purposes only. Indicate the source of deposits and the type of expense in the checkbook.

RECONCILING THE CHECKING ACCOUNT

When you receive your bank statement, make sure the statement, your checkbook, and your books agree. The statement balance may not agree with the balance in your checkbook and books if the statement:

Includes bank charges that you did not enter in your books and subtract from your checkbook balance, or

Does not include deposits made after the statement date or checks that did not clear your account before the statement date.

By reconciling your checking account, you will:

Verify how much money you have in the account,

Make sure that your checkbook and books reflect all bank charges and the correct balance in the checking account, and

Correct any errors in your bank statement, checkbook, and books.

Tip: You should reconcile your checking account each month.

Before you start to reconcile your monthly bank statement, check your own figures. Begin with the balance shown in your checkbook at the end of the previous month. To this balance, add the total cash deposited during the month and subtract the total cash disbursements. After checking your figures, the result should agree with your checkbook balance at the end of the month. If the result does not agree, you may have made an error in recording a check or deposit. You can find the error by doing the following.

(1) Adding the amounts on your check stubs and comparing that total with the total in the "amount of check" column in your check disbursements journal. If the totals do not agree, check the individual amounts to see if an error was made in your check stub record or in the related entry in your check disbursements journal.

(2) Adding the deposit amounts in your checkbook. Compare that total with the monthly total in your cash receipt book, if you have one. If the totals do not agree, check the individual amounts to find any errors.

If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct. When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. Many banks print a reconciliation worksheet on the back of the statement.

To reconcile your account, follow these steps.

(1) Compare the deposits listed on the bank statement with the deposits shown in your checkbook. Note all differences in the dollar amounts.

(2) Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. Note all differences in the dollar amounts. Mark the check number in the checkbook as having cleared the bank. After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks.

(3) Prepare a bank reconciliation.

(4) Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly.

At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. If you still have differences, check the previous steps to find errors.

Gregory J. Cook, EA, CPA+
Accredited Tax Advisor
Past President Alabama Society of Enrolled Agents
Past President Alabama Association of Accountants
contact:  secure email 1-800-551-6253 voice mail 117

Cook and Co., Enrolled Agents are licensed by the U.S. Treasury Department
to represent taxpayers before the Internal Revenue Service (IRS). Greg Cook is a
Certified Public Accountant (CPA) licensed by the states of Alabama and Tennessee.