What is a bank statement?
– A bank statement is a formal record a bank provides to an account holder that lists account details, balances, and the transactions posted during a set period (typically one month). It’s the bank’s official summary showing what flows in and out of an account and the opening and closing balances for that statement period.
Key terms (short definitions)
– Transaction: any movement of money in or out of the account (deposits, withdrawals, fees, transfers, payments).
– Electronic fund transfer (EFT): a non‑check transfer of funds initiated electronically (ATM withdrawals, debit card purchases, direct deposits, online bill pay).
– Transaction history: a selectable list of transactions for any period you choose; not necessarily the same as an official monthly statement.
How a bank statement works (essentials)
– Frequency: Most banks deliver statements monthly or quarterly. Some banks are not required to mail a monthly statement unless you made at least one EFT during the month.
– Delivery formats: Paper mailed statements, emailed PDF attachments, or digital statements available for download from a bank’s website or mobile app.
– Official vs. transaction history: An official bank statement covers a single statement period (e.g., Sept 1–30) and may not include very recent or pending items. A transaction history is an on‑demand list you can generate for any date range.
– Privacy: Banks do not release your statement information to third parties without your consent, except as required by law.
Common components of a bank statement
– Account holder name and contact info for the bank
– Account number (often partially masked)
– Statement period and opening/closing balances
– Chronological list of transactions with date, amount, and payee/description
– Interest earned (if any) shown as a dollar amount and sometimes as an annual percentage
– Fees charged during the period
– Summary totals (total deposits, total withdrawals)
Types and delivery details
– Paper statements: physical mailed statements. Some banks charge a per‑statement fee; fees and waivers (for seniors, minors, or under certain conditions) vary by institution.
– Electronic statements: free at most banks. Benefits include faster access, searchable text, and sometimes lower monthly maintenance fees when you opt in. Many users still print e‑statements for their records.
– ATM transaction history: short, immediate summaries printed at ATMs; these are not full official statements.
Why review your bank statement (benefits)
– Reconcile your records: check your checkbook/register or personal ledger against the bank’s record.
– Catch errors or duplicate charges: report discrepancies quickly
– Detect fraud or theft: you can spot unauthorized charges, ATM withdrawals, or cards used without your permission. Early detection limits exposure and speeds recovery.
– Monitor fees and interest: make sure monthly maintenance fees, overdraft charges, and interest credits match what your account agreement promises.
– Track spending and plan budgets: reviewing inflows and outflows helps classify recurring expenses and identify areas to cut.
– Prepare for taxes: bank statements document interest income, deductible payments, or charitable gifts that support tax filings.
– Provide proof of income or address: lenders, landlords, and government agencies often accept recent statements as proof of funds or residency.
– Support disputes and legal matters: a clean statement trail is evidence when you challenge a charge, file insurance claims, or support a legal case.
– Meet record‑keeping needs: businesses and individuals keep statements to satisfy audits, loan underwriters, and internal controls.
How to reconcile your bank statement (step‑by‑step)
1. Gather documents: the bank statement, your check register or ledger, deposit receipts, and copies of recent cleared checks.
2. Compare ending balances: start with the bank’s reported ending balance and your checkbook’s ending balance.
3. List outstanding items on the bank side:
– Deposits in transit (deposits you recorded but the bank has not yet processed).
– Outstanding checks (checks you wrote that haven’t cleared the bank).
– Bank errors (rare; e.g., bank deducted $50 in error).
4. Adjust the bank balance:
Adjusted bank balance = Bank ending balance + Deposits in transit − Outstanding checks ± Bank corrections
5. Adjust your book (ledger) balance:
Adjusted book balance = Book ending balance + Interest earned − Bank fees − NSF (bounced) check charges ± Book corrections
6. Compare adjusted balances: they should match. If not, identify missing items and correct them in your books or notify the bank.
Worked numeric example
– Bank ending balance: $3,250
– Deposits in transit: $400
– Outstanding checks: $150
Adjusted bank balance = 3,250 + 400 − 150 = $3,500
– Book (checkbook) ending balance: $3,480
– Interest earned (not yet entered in books): +$20
Adjusted book balance = 3,480 + 20 = $3,500
Result: adjusted balances match; reconciliation complete.
Checklist for monthly statement review
– Verify all ATM and card transactions.
– Match each direct debit and automatic payment to
to the corresponding authorization or invoice. – Confirm all incoming deposits (payroll, transfers, mobile deposits) are reflected and correctly dated. – Note any bank fees or service charges and verify they were disclosed. – Check interest, dividends, and other credits are posted and recorded in your books. – Flag any unfamiliar or duplicate transactions for immediate review. – Verify checks cleared match the check images (if available) and that amounts and payees are correct. – Reconcile foreign-transaction fees and currency conversions against receipts. – Ensure transfers between your own accounts are recorded on both sides (avoid double-counting). – Save or print a copy of the statement and any supporting images or docs.
Common causes of reconciliation differences
– Outstanding checks: Checks you wrote that haven’t yet cleared the bank. These reduce your book balance but not the bank’s until cleared. – Deposits in transit: Cash or checks you recorded that the bank hasn’t yet posted. These increase the bank’s adjusted balance when added. – Bank fees and service charges: Monthly fees, minimum-balance charges, or per-item fees not yet recorded in your books. – Interest or credits: Interest on savings or credits (e.g., ACH credits) the bank posts after you close your books. – NSF (insufficient funds) or returned items: Items that bounced reduce the bank balance and usually trigger fees. – Timing and posting differences: Weekends, holidays, and cut-off times can shift posting dates. – Data-entry errors: Transposed digits, missed decimal points, or duplicate entries in your register. – Unauthorized transactions: Fraudulent card charges or transfers you didn’t authorize.
How to resolve a discrepancy — step-by-step
1) Recalculate: Rerun the reconciliation math for both bank and book sides to confirm arithmetic. 2) Tick-and-trace: Mark every bank transaction against your register and vice versa; list unmatched items. 3) Identify type: Classify each unmatched item as “outstanding check,” “deposit in transit,” “bank fee,” “interest,” “error,” or “unauthorized.” 4) Adjust the books: Record bank fees, interest, or returned items in your checkbook or accounting system. 5) Contact payees/payers: If a deposited check was
returned (for example, for insufficient funds), ask the payer for a replacement or stop-payment confirmation, then record the returned item and any bank charges in your register. If a check you wrote hasn’t cleared, confirm the payee received it and consider reissuing only after it’s certain.
6) Notify the bank and file disputes: If you suspect the bank posted an error or an unauthorized transaction, contact your bank immediately by the channels it specifies (phone and secure message). Ask how to file a formal dispute and what documentation they require. Many U.S. consumer protections (for example, rules covering electronic fund transfers) set time limits for reporting errors; check your account agreement and government guidance for specific deadlines.
7) Keep a written trail: Save copies of the bank statement page, your ledger or accounting printout, receipts, cancelled checks or images, emails, and any dispute forms. Note names, dates, and reference numbers of all calls and messages. Good documentation speeds resolution and protects you if liability limits are contested.
8) Reconcile again after resolution: When the bank finishes its investigation or when a payer replies, update both the bank-side and book-side entries, then re-run the reconciliation math until both adjusted balances match. If the problem remains unresolved after the bank’s process, escalate to the bank’s dispute resolution department, and consider contacting a consumer agency (see sources).
9) Close the
9) Close the file: Once the discrepancy is resolved, finalize the record for that reconciliation period. Update your internal controls to reflect any corrective entries, print or save all supporting documents (final statement page, reconciliation worksheet, correspondence, dispute forms), and move the case from “open” to “closed” in your tracking system. Note the resolution date, responsible staff, and any follow‑up actions required (for example, refund timing or notification to a customer). Retain records according to your company policy and applicable law; for many businesses and consumers that means keeping bank statements and reconciliation records for several years.
10) Reduce recurrence with controls and automation
– Reconcile on a schedule: monthly is typical for most accounts; weekly for high‑volume cash accounts. Consistency shortens the window for undetected problems.
– Use accounting software: import electronic statements (OFX/QFX/CAMT formats) to reduce manual entry errors. Match transactions using the software’s “bank feed” tools.
– Implement segregation of duties: different people should initiate, record, and approve payments.
– Use fraud controls: enroll in positive pay (bank matches checks presented against a list you provide), ACH debit blocks, or real‑time alerts for large transactions.
– Set up notifications: low‑balance, large withdrawal, and new‑payee alerts catch issues sooner.
– Periodically review payee lists and signatory authority; remove unused checks and close dormant accounts.
Worked numeric example — step‑by‑step reconciliation
Situation: You’re reconciling a business checking account for the month.
1) Gather numbers from the bank statement and your ledger.
– Bank statement ending balance: $4,750.00
– Company ledger (book) ending balance: $5,050.00
2) Identify bank‑side reconciling items (items recorded by the company but not yet by the bank).
– Deposits in transit (recorded in books, not yet on bank statement): $1,000.00
– Outstanding checks (issued by company, not yet cleared by bank): $450.00
Calculate adjusted bank balance:
Adjusted bank balance = Bank statement balance + Deposits in transit − Outstanding checks
= $4,750.00 + $1,000.00 − $450.00 = $5,300.00
3) Identify book‑side reconciling items (items recorded by the bank but not yet in the ledger).
– Bank collected a note receivable for you: +$300.00
– Bank service fees charged: −$50.00
Calculate adjusted book balance:
Adjusted book balance = Book balance + Bank collections − Bank fees
= $5,050.00 + $300.00 − $50.00 = $5,300.00
4) Compare adjusted balances:
Adjusted bank balance $5,300.00 = Adjusted book balance $5,300.00 — reconciliation complete.
Common anomalies and how to handle them
– Missing deposits: verify deposit slips and timestamps; check for check holds under Regulation CC rules.
– Stale or canceled checks: confirm payee
– Stale or canceled checks: confirm payee and issue date; checks older than your bank’s stale‑date policy (commonly 6 months) may be returned or require reissuance. If the check is still outstanding because the payee hasn’t cashed it, mark it as outstanding but consider follow‑up (stop payment or reissue) after a reasonable period.
– NSF (non‑sufficient funds) or returned deposits: remove the deposited amount from cash and restore the customer receivable; record the bank’s NSF fee as an expense. Example journal entries for a $200 NSF check and a $35 NSF fee:
– Reverse deposit: Debit Accounts Receivable $200; Credit Cash $200.
– Record bank fee: Debit Bank Service Expense $35; Credit Cash $35.
Result: book balance falls by $235 relative to pre‑adjustment.
– Bank errors: if the bank posts a transaction incorrectly (wrong amount or duplicate), collect supporting documentation (copy of deposit slip, check image) and contact the bank immediately; banks will usually correct their errors after verification. Track the dispute until resolved.
– Interest, foreign transactions, and currency conversion: banks may post small interest credits, wire fees, or foreign exchange adjustments that don’t appear in your ledger. Record interest income as Credit: Interest Income and debit Cash for the amount; record wire/FX fees as bank expense.
– Automated debits and credits (ACH, direct debits, recurring payments): confirm authorization and timing; unmatched automated items often cause recurring reconciling items.
– Lost or missing statements: request a duplicate statement and check the bank’s online history before assuming a bookkeeping error.
Quick step‑by‑step for resolving a discrepancy
1. Recompute both balances: verify arithmetic on the bank statement and the ledger.
2. List all timing differences: deposits in transit and outstanding checks.
3. Identify bank‑side items not in books: bank collections, interest, fees, NSF items.
4. Identify book‑side items not on bank: recently issued checks, unrecorded payments.
5. Post correcting journal entries for book‑side omissions/errors. Example (from above): Bank collected $300 note and charged $50 fee. Journal entries:
– Debit Cash $300; Credit Notes Receivable $300.
– Debit Bank Service Expense $50; Credit Cash $50.
6. Contact the bank for bank‑side errors or items older than 60–90 days.
7. Reconcile until adjusted bank balance = adjusted book balance. Document the reconciliation and retain backup.
Monthly bank reconciliation checklist (minimum)
– Obtain the complete bank statement and images of checks (if available).
– Match deposits for the statement period to deposits in your ledger.
– Tick off cashed checks against ledger checks; list outstanding checks.
– Note deposits in transit.
– Record bank charges, interest, collections, and NSF items into the ledger.
– Prepare the bank reconciliation schedule showing adjusted bank balance and adjusted book balance.
– Post journal entries for book adjustments.
– File the reconciliation, supporting docs, and a brief explanation of any old reconciling items.
– Have a second person review and sign off.
Internal controls and good practices
– Segregate duties: the person reconciling should not be the same person who handles cash receipts and disbursements.
– Mail and statement handling: bank statements should be received unopened by someone independent of cash recording.
– Use positive pay or check‑verification services for preventing check fraud.
– Reconcile monthly (or more frequently for high‑volume accounts).
– Investigate reconciling items older than 60–90 days promptly.
– Keep electronic copies of deposit slips, check images, and dispute correspondence.
Automation and tools
– Bank feeds in accounting software reduce transcription errors; still verify matches and rules periodically.
– Use rules to auto‑categorize recurring items, but audit the rules quarterly.
– Consider third‑party reconciliation tools if you manage many accounts or high transaction volumes.
Common mistakes to avoid
– Ignoring small reconciling items (they compound).
– Double‑counting deposits in transit.
– Failing to record bank fees