See Also:
5 C’s of Credit (5 C’s of Banking)
Bank Charge
Bank Reconciliation
Financial Position
Line of Credit (Bank Line)
Bank Statement Definition
A bank statement, defined as the statement received from a bank after each month as a customer, is one of the most basic accounting statements to exist. Bank statements usually include the available balance, existing balance, deposits, withdrawals, interest, fees, penalties, and possibly more.
Bank Statement Explanation
A bank statement, explained as the statement which reflects your banking history, is as much a document for business as it is one for personal life. Bank statement analysis provides information about the recent banking history of a customer. They provide value on multiple levels.
First, they tell the client about the existing balance in their account. For a business, the combination of all accounts is close to the cash balance.
Second, bank statements show deposits. This provides another record of deposits made to the account which is separate from accounting statements. The value of this is evident to accountants: they love redundancy in financial statements and documents.
Third, a bank statement reflects withdrawals. This has many benefits: showing transfers of funds, expenditure of funds, and perhaps may even indicate a withdrawal which was not permitted.
Fourth, bank statements show interest. This is another income which the company has received and must be included in the financial statements of the business. It also shows the value created by funds which are in the bank. This becomes a measuring point for comparison in the return on investment in other projects.
Fifth, it included fees and penalties. This shows the cost of keeping the bank account. Additionally, it shows the mistakes that have been made while keeping the bank account. Though these penalties are a cost they are also a test. Penalties show that a business has room for improvement.
Though bank statements are a common document they are also a tool. Accountants and company controllers know this. Even the personal bookkeeper, managing the funds that they make themselves, know the true value of bank statement accounting.
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Bank Statement Example
John is just starting his small business. John, a local farmer, grows hay in his many fields. Though he does not see himself as an entrepreneur John intends to grow his profits. He truly is an entrepreneur: he is in charge of his future and wants it that way.
John is also his own accountant. He uses quickbooks to keep records of what he spends and what he makes. To John, his statements are one of the most important financial records. He will learn this later when he experiences bank statement errors.
Recently, John realized his account balance is was too low. Thanks to internet banking, he realized fraud has occurred in the form of theft. Someone has his card number and is using it for their own gain.
John makes quick work of this. He calls and is able to take care of the theft. Due to the fact that his bank has fraud prevention he eventually receives his funds back. John is set to ease with this result and can move on to grow his business.
John’s experience mirrors that of a larger business. Instead of personal theft, he would have called an External Auditor in to his business. Whether large or small business bank statement retention is a policy which keeps documents that have powerful value.
If you want to add more value to your organization, then click here to download the Know Your Economics Worksheet.
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