What are bank statements?

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A bank statement is a document or report itemizing all of the transactions that take place in a bank account within a specified time period. Statements are typically sent to the account holder in regular intervals on a fixed date, usually monthly.

Consumers and businesses that hold bank accounts are typically provided with a bank statement on a regular basis. It is required that financial institutions provide their account holders with a statement that shows the financial status of the account, including its assets and liabilities.

Information included on a bank statement

There is a wide variety of information included on a bank statement. Most bank statements provided for consumer savings and checking accounts include the following:

  • Defined period. Since bank statements review a specific period of time, the bank statement will identify the start and ending dates for the period covered by the bank statement.
  • Summary. Most statements begin with a summary of the current balances in the customer accounts covered by the statement. This summary section may sometimes include the totals of credits and debits for the period.
  • Transaction details. The bulk of most bank statements involve the itemization of the credit and debit transactions for the covered period.
  • Notices. Some institutions also use bank statements as an opportunity to send alerts and special notices to customers.

The transaction information that is provided on a bank statement includes the account holder’s deposits and withdrawals, as well as any interest that was earned, debts that were paid (and checks that were cancelled), and penalties or service charges that may have been incurred.

The bank statement also shows the overall effect of these transactions, and it provides the balance that remains in the bank account as to the date that the statement was prepared. One of the traditional uses of bank accounts for both consumers and businesses has been to balance check books.

Other uses of the bank statement

But bank statements aren’t just for balancing checking accounts. Both account holders and creditors have numerous uses for bank statements. These statements can help to identify the credit profile of the account holder, as well as get a good idea of the account holder’s regular income and expenditures.

Bank statements are often used by creditors and consumer loan providers when reviewing an applicant for a loan or to issue credit. Prior to issuing access to funds, creditors typically want to know a potential borrower’s:

  • Income amounts and periods
  • Savings habits
  • Disposable cash
  • Debt burdens
  • Available reserves

For example, home mortgage lenders often request copies of the loan applicant’s most recent bank statements. In addition to documenting sufficient funds and reserve assets to close on the mortgage loan, the mortgage lender may also be alerted to large recent deposits that may be evidence of a new, undisclosed loan obligation.

Some mortgage lenders and many personal loan providers also use bank statements to document income eligibility. Because most employees either deposit their paychecks into their accounts in order to cash it or have their paychecks directly deposited, bank statements can provide documentation of actual take-home pay, after taxes and deductions.

Bank statements become particularly important for potential loan borrowers who are self-employed or have irregular income. Because they don’t have regular pay stubs to document qualifying income levels, lenders may review bank statements to determine an average monthly income amount.

History of bank statements

When initially introduced, bank statements consisted of paper information that was sent to account holders either on a monthly or quarterly basis. In some cases, bank statements were only sent out annually. However, since computers began to be introduced to many larger banks during the 1960s, bank statements have typically been sent to account holders on a monthly basis.

Today, with the popularity of online banking through the Internet, electronic statements (also referred to as e-statements) can be viewed by a consumer or business account holder at virtually any time. These “virtual” statements are a convenient, cost-effective and environmentally friendly alternative to paper bank statements.

With electronic statements, there is less likelihood that the bank statement can be stolen and used for credit fraud. Banks can also offer additional features, such as easy access to copies of canceled checks and links to frequently asked questions about statement items.

Reconciling bank statements

Reconciling bank statements is a common chore undertaken by consumers and business alike to ensure that both bank account records and internal records are consistent and accurate. When reconciling a bank statement with one’s business or personal records, an account holder should look out for any numbers that appear to be transposed or incorrect. In addition, one should also look for any unauthorized transactions that are recorded on the statement, as this could signal theft of one’s banking information or even identity theft.

Consumers and businesses should review their bank statements on a regular basis in order to determine if there are any errors or discrepancies. Should any incorrect information be found, the account holder should immediately report the error to their banking institution.

Disclaimer: NetCredit is a direct personal loan provider and does not provide financial advice, nor does it vouch for any vendor or service mentioned on our NetCredit personal finance blog or online consumer loan glossary. Always research and perform due diligence on any service provider or vendor before deciding to use them, and we recommend that you speak with a financial advisor regarding all decisions that will affect your finances.

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