What Is A Bank Statement?
A bank statement is an important document for your business. From tracking income and expenses to detecting fraudulent activity, here's what you need to know about bank statements.
Bank statements are important documents used for business and personal financial purposes. Whether you hold a personal or business banking account (or both), it’s important to review and understand your bank statements.
In this post, we’re going to break down bank statements, including what they are, what information they include, and how you can use bank statements in your business.
Table of Contents
What Is A Bank Statement?
A bank statement (also called an account statement) is a document from your bank that shows all activity from your account for a specified time period — usually the one-month period leading up to the date of the statement. Most banks send bank statements monthly, although a few send them on a quarterly basis.
Your bank statement includes a record of all transactions of an account, allowing you to see when money came in, when money came out, who was paid, and what area you’re spending the most money on.
Electronic VS Paper Statements
Electronic statements (or e-statements) are an environmentally-friendly and convenient option for businesses that want to lower their impact on the environment while keeping track of fewer physical files.
Some account holders prefer paper statements. Paper statements are particularly useful for those who complete their payroll or taxes on paper instead of online.
Information Included In A Bank Statement
Regardless of where you hold an account, most bank statements contain the same information. Here’s what is included in a bank statement.
The top of your bank statement is typically going to include your business contact information. It’s always a good idea to check your statements to make sure your legal name, business name, address, email, and phone number are accurate.
Average Daily Balance
Your statement may include your average daily balance. This information is especially important for accounts that are charged a monthly maintenance fee if the average balance falls below a certain amount.
If this is the case for your account, you can keep track of whether you’re meeting those requirements by checking each bank statement. You’ll also be able to see this and other fees that are charged by looking through your transactions.
Your incoming transactions are often grouped together near the top of your bank statement to show how much money was deposited into your account during the statement period.
Your banking app may also show you this information throughout the month. Many financial institutions also track this data in a graph and compare it to prior months or years.
Opening & Closing Balance
The opening balance shown on your bank statement is the balance of your account before any of the transactions listed on the statement were completed.
The closing balance shown on your bank statement reflects the balance of your account after the transactions listed on the statement. If you receive monthly statements, the opening balance will show the balance at the beginning of the month (or the starting date of the statement). The closing balance will show what is left after all transactions made during the statement period were completed.
The account activity section shows a history of all transactions that took place during the statement period. There are two types of transactions: debits and credits.
Debits are transactions that occur when money is taken out of the account, such as making a purchase or paying bills. Credits are transactions that occur when money is deposited into the account, such as direct deposit paychecks, refunds, and cash deposits at ATMs.
On your bank statement, all transactions will have the following basic data:
- The amount of the transaction
- The date the transaction took place
- The organization or individual paying or receiving the funds
You won’t be able to see a detailed receipt of your purchases on your bank statement. If you make both business and personal purchases in the same transaction, you might have a hard time differentiating how much you spent without a copy of the actual receipt to accompany the statement. This is just one reason it’s important to separate your personal and business expenses by opening a business bank account.
What Are Bank Statements Used For?
Bank statements are important for personal and business finance for a few reasons, including tracking income and expenses, identifying fraud, applying for funding, and tax purposes.
Tracking Income & Expenses
Bank statements help keep your business on track when it comes to the goals, mission, and overall practices you set out for yourself when you made your business plan.
With bank statements, you’ll be able to track spending, manage your budget, and see where you can cut expenses. Tracking your income and expenses is key to keeping your costs low and your profits high.
Business owners can use bank statements to track potential discrepancies. In addition to reviewing your account daily, you should review your bank statements each month to identify any discrepancies as soon as possible. The sooner you report these discrepancies to your financial institution, the more likely you are to get your funds back if you are the victim of fraud or misappropriated funds.
You typically have 60 days from the issue date of your statement to dispute any errors you may find in your statement, but this timeline varies by institution. We recommend keeping your statements in your records for at least one year.
Applying For Funding
If you apply for a small business loan, you typically have to provide bank statements from at least the last three months. This shows the lender how much money is going into and out of your business to help them determine if you qualify for funding.
Using Bank Statements For Tax Purposes
Bank statements can also be used when filing your income tax return. When used with receipts and other business records, bank statements can help you calculate deductions to lower your tax liability.
The Bottom Line On Bank Statements
Bank statements are important for businesses because they track all activity from an account for as little as a week to as long as the lifetime of a bank account. This information is crucial for tracking income and expenses, applying for funding, identifying fraud, and writing off expenses on your income tax return.
Want to know more about business banking? Merchant Maverick has you covered! Start by learning how to open a business bank account. Next, learn how to choose the best bank for your business. Finally, start your search with our top 10 picks for best business bank accounts. Good luck!