What is a Bank Statement: Definition, Purpose and Examples

Introduction

In today’s increasingly digitized financial sector, bank statements are the cornerstone of accountability and transparency. These documents provide a detailed record of all transactions made through a bank account during a specified time period.

Apart from its obvious utility in tracking expenses and revenue, understanding the complexities of a bank statement is critical for financial literacy and management. Few documents carry as much significance, in both personal and corporate finance as a bank statement, making them central to financial accounting.

In this blog, we dive into understanding what a bank statement is, its purpose, how to analyze bank statements, and the key role they play in reconciliation.

What is a Bank Statement?

A bank statement is a document given to an account holder by a financial institution to detail all transactions occurring over a specific time period.It gives a full overview of one’s financial activity, such as deposits, withdrawals, transfers, and other information related to the account.

Bank statements play an important role in financial management because they provide transparency and important insights into a company’s financial health. Individuals and businesses should be in a position to understand the complexities of a bank statement so that they can trace their expenditure, detect problems, reconcile their accounts, and take the right decisions with regard to finances.

What is the Purpose of a Bank Statement?

A bank statement allows one to analyze their account activities over a specific time period. It helps in identifying any fraud or accounting problems, and highlighting anomalies that can cause future issues. This enables entities to control their expenses, keep track of their balance, & detect issues. 

Bank statements are also used for account reconciliation, which involves comparing the statement to other financial records, such as a personal accounts ledger or a budgeting tool, to identify any difference. Additionally , bank statements are important documents for budgeting, filing taxes, auditing, and financial planning.

Let us further explore some of the other purposes of a bank statement below:

1. Financial transparency

   
   

   Bank statements offer financial transparency by providing clear insights into all the transactions in a stipulated period. This helps an entity determine their current financial position. By frequently updating and analyzing their bank statements, people become more financially aware and responsible to make financial decisions.

   
   

2. Tracking expenses

   
   

   The primary purpose of a bank statement is to keep the owner of an account informed about their expenses. By analyzing the transactions, individuals and businesses can notice key expense trends, identify where they are overspending, and based on these insights make decisions to optimize their budget.

   
   

3. Budget management

   
   

   The basis of effective budget management is accurate and timely financial information.Bank statements contain the necessary data points to create budgets, set financial goals, and track changes over time. By aligning expenditures with income, individuals and businesses can maintain fiscal discipline and achieve long-term financial stability.

   
   

4. Error detection and resolution

   
   

   Bank statements serve as critical tools for detecting errors or discrepancies in transactions. Whether it’s an unauthorized charge, a missing deposit, or a processing error, reviewing bank statements regularly enables account holders to rectify mistakes promptly and safeguard their financial assets.

   
   

5. Legal and compliance requirements

   
   

   In certain situations, such as tax filing, loan applications, or legal disputes, bank statements serve as official documentation of financial activity. They provide verifiable evidence of income, expenses, and account balances, ensuring compliance with regulatory standards and facilitating seamless interactions with financial institutions and regulatory authorities.

   
   

Steps to Read a Bank Statement

Reading a bank statement involves a series of steps. To comprehend a bank statement, first go through basic account information such as the name of the account holder, account number, and statement period. Next, go through the transactional data. Classify the transactional data into deposits, withdrawals, and transfers. Be careful with dates, amounts, descriptions of the transactions, and fees or charges. Finally, reconcile the closing balance with your internal records to ensure the information is accurate. Let us go through each of these steps in detail: 

1. Check basic account information

   
   

   Check the name of the account holder, the account number, and the period for which the statement is given. Be sure the information matches your records and corresponds with the correct time frame.

   
   

2. Review transaction details

   
   

   Look closely at the details of each transaction on the statement, including deposits, withdrawals, transfers, and associated fees and charges. Be sure to note dates, transaction descriptions, and related amounts.

   
   

3. Categorize transactions

   
   

   Sort transactions into key categories like revenue, expenses, transfers, and fees. This step aids in evaluating spending habits, discovering potential savings opportunities, and successfully reconciling accounts.

   
   

4. Calculate running balances

   
   

   After each transaction, obtain the running balance of the account to track the changes in the account balance over time. This helps in tracking trends, identifying anomalies, and keeping the account up to date.

   
   

5. Reconcile with own records

   
   

   The ending balance on the bank statement should be compared to one’s own financial records, which include receipts, invoices, and checkbook entries. Reconciliation of differences ascertains that the statement is correct, hence controlling or detecting any fraud or errors.

   
   

Different Types of Bank Statements

Bank statements come in a variety of forms, catering to different needs and preferences. The most common types are paper statements mailed to account holders, electronic statements that can be accessed online or through mobile apps, and consolidated statements for accounts held across many financial institutions. There are various different types when we consider bank statement examples, and each type varies in terms of accessibility, convenience, and environmental impact.

• Paper statements

  
  

  Traditional paper statements are mailed to account holders on a regular basis, usually monthly or quarterly. While they provide tangible documentation, they may need more storage space and raise environmental concerns..

  
  

• Electronic statements

  
  

  These statements, often known as e-statements, can be accessed online or via mobile banking applications. They are more convenient, provide rapid access, and have a lower environmental impact than paper statements.

  
  

• Consolidated statements

  
  

  Consolidated statements present information from multiple accounts held with the same institution or different institutions. They offer a complete view of an individual’s financial portfolio, thereby facilitating easier account management and analysis.

  
  

Requirements for a Bank Statement

In order to generate a bank statement, some preconditions have to be met. These preconditions demand an account holder to have an active bank account with transactions being carried out from time to time, and exact record-keeping of the same. Besides, it is necessary for accounexat holders to subscribe to electronic statement delivery, provide updated contact information, and comply with the financial institution’s security measures. If you are still wondering how to get a bank statement, you can refer the steps below:

1. Active bank account

   
   

   To receive a bank statement, individuals or organizations must have an active bank account with the financial institution.

   
   

2. Regular transactions

   
   

   Bank statements are prepared based on account activity; thus. frequent activities, such as deposits, withdrawals, and transfers, are required to produce a statement.

   
   

3. Accurate record-keeping

   
   

   This is required to generate credible bank statements. Account holders should ensure that their transactions are correctly documented and classified in order to enable statement generation and reconciliation.

   
   

4. Opting for electronic delivery

   
   

   Many financial institutions allow you to receive electronic statements instead of paper ones. Account holders may need to opt in for electronic delivery and update their contact information in order to get electronic statements by email or online banking portals.

   
   

5. Compliance with security procedures

   
   

   Security procedures specified by financial institutions need to be followed regarding the account holders maintaining the confidentiality and integrity of bank statements. This can be done by account credential protection, secure use of the internet, and enabling multi-factor authentication for access to online banking.

   
   

How HighRadius Can Help?

HighRadius offers unique solutions to reduce financial operations and improve operational efficiency in the organization with its Record-to-Report software. HighRadius’ innovative Financial Close Management software, which is powered by advanced automation, machine learning, and predictive analytics, enables firms to maximize cash flow, decrease risk, and aid in strategic decision making. It simplifies and automates numerous procedures from start to finish, resulting in a 30% reduction in the number of days required to close the books and create a bank statement. 

HighRadius integrates with major banks and ERPs to get financial statements and reconcile bank transactions with General Ledger entries. This process ensures all transactions are verified with evidence to support them. In addition to this, with the help of anomaly detection which automatically finds inaccurate or omitted transactions, businesses can ensure that their financial information is accurate.

With personalized dashboards, real-time analytics, and seamless connectivity with banking systems, HighRadius transforms how businesses manage their bank statements. Its Account Reconciliation & Anomaly Management software improves accuracy and reduces errors, allowing organizations to survive in today’s ever-changing financial world.

FAQs

1) How long should you keep bank statements?

In general, statements from the bank can be kept for at least a year. Although for tax purposes and to be able to prove your income and expenses, it is well-advised to keep them for up to seven years in case of audits, disputes, or other financial queries that may arise in the future.

2) How can I get a bank statement?

You will usually be able to access your bank statements from the internet banking page of your bank, where you will find the opportunity to view and download e-copies. You can also request printed copies at any bank branch or contact your bank’s customer service, which may take a couple of days.

3) What is an official bank statement?

A bank statement is an official document from a financial organization with a complete breakdown of all transactions, balances, and other account activities within a specific time period. It is considered a very credible, valid record of the financial condition of an individual or business.

4) Why is it important to reconcile your bank statements?

Bank reconciliation is a process where one reconciles the records from the check register or any other record-keeping software with the transactions detailed on the bank statement. Through this process, a discrepancy, error, or fraudulent activity is detected, which provides insight into your financial health.

5) What is a bank statement loan?

A bank statement loan is a type of mortgage or personal loan where the lender estimates the borrower’s income through bank statements rather than through traditional methods, like tax returns or pay stubs. It is mostly used by self-employed people or others who have more than one income source.