What Is a Bank Statement ?
A bank statement is an official overview of financial transactions that occurred within a certain time period for each bank account held by an individual or business with a financial institution. Such statements are created by the bank, are numbered, and show the time period represented by the statement. They may also include additional relevant details for the account in question type, such as the amount that is due by a given date. The statement period normally begins the day after the preceding statement period ends.
Details on a statement are ordinarily not alterable once it has been generated and sent to the customer; any inaccuracy discovered would normally be fixed on a subsequent statement, typically with some documentation explaining the cause for the correction.
Customers frequently utilise bank statements to monitor cash flow, look for potentially fraudulent transactions, and complete bank reconciliations. Traditionally, they were printed on one or more sheets of paper and either mailed to the account holder or maintained at the banking organization’s local branch for pick-up. There has been a shift towards printable electronic statements in recent years, and numerous banks now allow direct downloads of financial data into account holders’ accounting programmes to ease the reconciliation process. Bank statements are significant papers that must be kept for audit and taxation reasons for a time determined by the applicable tax authorities.
How a Bank Statement Works ?
A bank statement details every activity or activity that occurred on a bank account within a specific time period. Transactions on a bank account are typically displayed in chronological order. The bank keeps a record of each transaction, including the date, the kind of the transaction, and the value in dollars. It provides a starting and ending balance records so that the account holder understands the quantity of money at the end of the month in comparison to its beginning figure.
Withdrawals and deposits are the two types of bank account transactions. Withdrawals are sums of cash that are taken from an account. This covers POS transactions, withdrawing cash from an ATM, checks written and redeemed, and debit card purchases. Deposits are sums of money that are deposited into an account. This comprises cash and cheque deposits, inbound wire transfers and money transfers, and employer direct deposits.
The bank statement will also display any account costs, such as annual service fees, overdraft fees, or not enough money fees. It should be noted that not all transactions will reflect on a bank statement. A pending transaction, for example, a cheque written but not cashed, will not display on the banking statement until it has been completed by the bank. A running balance will be reported at the end of the statement duration, indicating the entire amount of money in the account.
Requirements for a Bank Statement
A bank statement contains information about:
- The address and phone number of the bank
- Account specifics
- The date of the statement
- The total amount of days in the financial statement period, or the beginning and end dates of the period
- Account balances at the start and end
Details of each transaction that occurred in the bank account throughout the time, including the amount paid, the date, and payee, will also be supplied, such as:
- Checks have been cashed
- Any fees or charges for services that have been deducted from the account
- Account interest earned
- The amount of money earned in interest during the statement time
Types of Bank Statements
Many banks allow account users to receive paper or electronic declarations, typically via email.
1. Electronic Bank Statement
Historically, bank statements were printed on paper on a monthly, quarterly, or annual basis. Bank statements have traditionally been prepared monthly since the arrival of computer systems in banks in the 1960s. Bank statements for low-transaction-volume accounts, such as investments or savings accounts, may be printed less regularly. Depending on the financial organisation, bank statements can additionally contain cancelled cheques (or photographs of them) that cleared through the account within the statement period. Paper statements are often mailed to a consumers home address, with a copy sent to someone else, such as an accountant or parent.
Some financial organisations use the posting of bank statements to incorporate notices such as fee or interest rate changes, as well as promotional content. Customers must receive paper statements from financial institutions unless they prefer electronic information or no statements at all. Historically, the creation of statements was considered a component of the banking function, and the price of which was included in the cost of delivering the service. However, in order to encourage clients to opt for electronic statements, several financial institutions have recently begun charging a premium for printed statements.
Individual account holders in some countries, such as Japan, were anticipated to maintain track of their withdrawals, deposits, and balance using their own passbooks at ATMs, rather than receiving statements by mail.
2. Paper Bank Statements
Banks have been encouraging customers to obtain statements electronically since the late 1990s. Normally, the transition requires express consumer approval, which is often gained through an online banking system. Creating electronic statements saves financial organisations money on printing, folding, and mailing statements. Customers might also obtain statements more quickly and not be reliant on the mail delivery service. If necessary, the consumer could print the statement at their location or have access to prior statements on the institution’s website. Other parties may be granted access to the client’s financial data on the institution’s webpage.
Electronic statements can be provided as files to emails or, as a precaution for safety, as a reminder that a new statement can be found on the financial institution’s website. While such statements are provided as attachments or via the website, they are typically created in PDF format to limit the recipient’s ability to digitally alter the statement.
Due to identity theft concerns, a digital statement may not be viewed as a risky alternative to physical theft because it does not contain physical personal information and does not necessitate additional disposal safety measures such as shredding. However, a gadget statement can be obtained more easily than a physical one due to computer fraud, data eavesdropping, and/or storage media theft.
Benefits of a Bank Statement
Bank statements are crucial records because they detail how much money is made and spent. There are some advantages :
Bank statements can assist in tracking progress towards savings goals. Account holders can discover how much they save on a monthly or yearly basis by reviewing deposits and withdrawals. This data can help you make future financial choices, such as whether to raise your savings contributions.
Filing for Tax Returns
When submitting tax returns, statements from banks can be used as proof of income. To properly file taxes, the IRS requires individuals to keep precise records of their income and expenses. The majority of individuals get a W-2 form from their company, which displays the entire amount of money earned during the year. Individuals who are independent or have other sources of income, on the other hand, will need to present additional documents, such as bank statements, to demonstrate how much money was made.
Applying for Loans
When asking for a loan, the lender may request bank statements as part of the financing request process. This is due to the fact that bank statements might reveal information about a person’s financial background and capacity to repay a loan.
Detecting Fraudulent Transactions
Bank statements can also be utilised to identify suspicious transactions. Any unauthorised activity in the financial institution’s account can be detected promptly by monitoring bank statements on an ongoing basis. If any are discovered, the account’s holder should call their bank right away.
Determining Earned Interest
Bank statements can be used to determine the amount of interest earned on a deposit account. Customers with accounts can use this data to compare interest rates amongst banks and ensure they are receiving the best possible return on their investment. They may also use this data to decide whether to switch savings accounts or invest in more profitable items.
Monitoring Account Balance
Bank statements keep account holders informed of their present balance. This data can help you prevent overdraft penalties by keeping track of your account balance and ensuring you have enough funds to pay any transactions.
Checking For Any Errors or Discrepancies
Although banks normally have a robust system in place to monitor and record transactions, errors do occur on occasion. That is why it is critical for those with accounts to thoroughly study their statements and report any inaccuracies or anomalies to their bank.