Bank Statement: What It Is and How to Read It

What is a bank statement

A bank statement is the document in which the bank lists the transactions on an account over a period: every collection, every payment and every fee, with the balance at the start and at the end. It lets the account holder check what has happened in the account and, for a company, it is the external reference the books are reconciled against. In some Latin American countries it is called an account statement.

What does a bank statement show

• Account holder and account number (IBAN).
• Period the statement covers.
• Opening balance.
• Transactions: transaction date, value date, description, amount as a debit or credit and, often, the running balance after each one.
• Closing balance.

Transaction date and value date

The transaction date is the day the transaction is recorded. The value date is the day from which that money counts toward the balance and interest. They do not always match.

How to read a bank statement

1. Check that the account and period are the ones you want.
2. Add the credits and subtract the debits from the opening balance: you should get the closing balance.
3. Review any debits you do not recognize, such as fees, direct debits or card payments.
4. Read the description of each transaction. It says who is paying or being paid, although it is often abbreviated or cut off.

Bank statement formats

Banks provide statements as PDF, for reading; as Excel or CSV, for working with the data; and as files in a standard format that accounting software and ERPs can import. To reconcile many transactions, a structured file is far more useful than a PDF.

Bank statements and reconciliation

In bank reconciliation, each transaction on the statement is matched with its accounting entry: a collection with the invoice it pays, a debit with its expense. The difficulty is the description. The bank does not always show the invoice number, one client may pay several invoices with a single transfer, and another may pay only part.

An example

A company receives a transfer whose description only shows the client's abbreviated name. To find out which invoice it pays, the accountant searches that client's open invoices for one with the same amount, or several that add up to it.

Bank statements in DPI's reconciliation

In the bank reconciliation case DPI delivered for a public-sector supplier, the bank only provided a general list of transactions with no invoice number, and the accounting team was manually reviewing more than 580 invoices a month. The system loads the statement in Norma 43, the Spanish bank statement file format, then cleans and standardizes it. It then fetches open invoices from the ERP and runs three matching methods in parallel: invoice number, amounts and client fingerprints.

DPI's automated bank reconciliation solution accepts the transaction file in Norma 43 or Excel, exported from the bank.