Bank statement definition

What is a Bank Statement?

A bank statement is a document that is issued by a bank once a month to its customers, listing the transactions impacting a bank account. The statement provides the following information:

The beginning cash balance in the account
+ The total amount of each deposited batch of checks and cash
- Funds withdrawn from the account
- Individual checks paid
+ Interest earned on the account
- Service fees and penalties charged against the account
= Ending cash balance in the account

The bank statement shows the cumulative balance of cash in the account, net of all the preceding transactions, as of the end of each day in the reporting period. Some banks still print these statements along with an accompanying set of images of all cleared checks.

Bank statements do not necessarily mirror the days in a calendar month. Instead, customers may request that their bank statements cover a one-month period that ends on a different date (for example, the 25th day of the month).

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How to Use a Bank Statement

The person receiving a bank statement should compare the information in it with his or her own records of the same transactions. Any discrepancies may have arisen at the bank (such as a transposed number in a check payment or a deposit), for which the bank should be contacted at once to make an adjusting entry. It is also possible that the error is in the recipient's records, in which case he or she should revise the company's accounting records to fix the error. This review process is a good way to detect instances of fraudulent behavior by a third party, involving illicit withdrawals from the bank account. This review process is known as a bank reconciliation.

Daily Bank Reconciliations

Bank statements can be delivered on paper or as electronic versions that customers can access on the bank website and download. They are usually updated on a bank's website on a daily basis, so that companies can engage in daily bank reconciliations to ensure that their book balances are up-to-date, and that any fraudulent items are spotted at once. Online records usually include images of cleared checks. Conducting daily bank reconciliations also leaves less reconciliation work at the end of the month, when the month-end bank reconciliation is completed; this allow you to close the books faster.

Advantages of a Bank Statement

There are multiple advantages associated with bank statements, which are as follows:

  • Useful record of transactions. A bank statement provides you with a detailed presentation of every transaction that ran through your account during the measurement period. You can then use this information to track your financial transactions.

  • Useful for discrepancy analysis. Using a bank statement to reconcile your checking or savings account to the bank’s records is a good way to see if any discrepancies have crept into your accounting records.

  • Useful for fraud detection. Regularly reviewing a bank statement is a good way to see if fraudulent activity has occurred on the account, so that you can take action to keep such activity from occurring again in the future.

  • Useful for credit applications. Lenders and creditors frequently ask to see your most recent bank statements, so that they can review your financial transactions. Without a bank statement, they might not grant you credit.

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