Bank Statement Extraction

What is a Bank Statement: Components, Purpose & How to Process It

A bank statement is a document provided by a bank that summarizes the financial activity in an account over a certain period. Read the blog to learn more about what a bank statement is, its purpose, components, and how to get one.

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What is a Bank Statement: Components, Purpose & How to Process It

Bank statements are essential documents generated by banks and financial institutions each month. They serve as a detailed record of a customer's financial activities. People with a checking or savings account can easily access their bank statements online by visiting the bank's website or logging into their net banking portal.

Understanding bank statements is crucial, and recognizing their purpose is key to managing finances well. These statements help monitor account activity and check transactions. They also aid in financial planning.

Customers often review bank statements to prevent fraud and avoid high account maintenance fees. They can get a bank statement through digital access or physical copies. This lets them monitor their finances and fix errors quickly and closely.

What is a bank statement: definition & types of transactions  recorded

A bank statement is a summary of transactions that are processed during a set period of the month. The statement lists account details such as charges, deposits, withdrawals, and deductions. It also has the account holder's name and account number. Bank statements also show the opening and closing balances of an account.

It is a clear record of the individual's finances. It helps monitor cash flow, verify bank activity, and manage money well.

Types of transactions recorded on a bank statement

1. Deposits

  • Direct deposits: Electronically deposited funds such as paychecks or government benefits into your bank account.
  • Checks deposited: Money added to your account from checks you deposit.
  • Transfers received: Funds transferred to you from other accounts, including wire transfers.

2. Withdrawals

  • ATM withdrawals: Cash you withdraw from your account using an ATM.
  • Debit card transactions: Purchases or payments made using your debit card. The money is directly deducted from your bank account.
  • Checks written: Payments you make by writing checks, which are then encashed or deposited by the recipient.

3. Fees

  • Monthly maintenance fees: Regular charges for account upkeep.
  • Non-sufficient funds (NSF) fees: Fees incurred when a presented check is returned, or a payment cannot be made due to insufficient funds.
  • ATM fees: Fees charged for using ATMs not affiliated with your bank.
  • Overdraft fees: Occurs when you don't have enough money in your account to cover your transactions.

4. Interest earned

The amount credited to your account as interest earned for keeping your cash in a bank account. It depends on your account type and the bank's interest policy.

Components of a bank statement

Understanding each component of a bank statement can help you manage your finances effectively and spot discrepancies. Here's what you'll find in a bank statement.

Components of a bank statement

1. Account information

  • Account Number: This is a unique identifier for your bank account. It is crucial for transactions and ensures that money moves to and from the correct account. 
  • Account Holder's Name: The person or entity that owns the account. 
  • Statement Period: The specific time frame the bank statement covers, usually monthly. This period marks the start and end dates for all listed transactions.

2. Transaction details

  • Date: Each transaction on your statement includes the date when it occurred, which helps you track when money was spent or deposited.
  • Amount: The value of each transaction is listed, showing whether it was an addition (credit) or subtraction (debit) to the account.
  • Description: This provides a brief explanation of each transaction. For deposits, it might list the employer's name or the source of a wire transfer. For withdrawals, it helps you check where a debit card was used or to whom a check was written.
  • Running Balance: This figure is updated to show the new balance of the account after each transaction. It helps you continuously see each transaction's impact on your account status.

3. Summary section

  • Opening Balance: The amount in the account at the beginning of the statement period. It's the closing balance from the last statement.
  • Closing Balance: The amount in the account at the end of the statement period. This figure will begin the next statement period as the new opening balance.
  • Total Credits: The sum of all credits to the account during the statement period. This includes all deposits, transfers into the account, and any interest earned.
  • Total Debits: The sum of all debits from the account during the statement period. This encompasses withdrawals, card purchases, fees, and checks issued.

What is the purpose of a bank statement?

Bank statements statements are vital for both the account holder and the financial institution for various reasons: 

1. Purpose of bank statements for the account holder

Bank statements are not just records of transactions. They are tools to manage personal and business finances well.

1.1 Record Keeping

  • Tracking finances: Bank statements provide a detailed record of all transactions. They include deposits, withdrawals, transfers, and fees. Account holders can see how much they have spent and how much remains by reviewing these statements.
  • Managing the budget: Regular updates on financial activity help individuals and businesses ensure they are not overspending. Bank statements allow them to review their financial habits and adjust their budgets to maintain financial stability.

1.2 Monitoring

  • Identifying fraud and errors: Bank statements help account holders quickly identify unauthorized transactions or bank errors affecting their balances. Spotting issues early is crucial as it helps solve them fast and protect ourselves from fraud and loss.
  • Ensuring accuracy: Customers should check their bank statements often. This helps them spot transaction mistakes, like being charged twice for a purchase or transferring the wrong amount.

1. 3 Financial planning

Bank statements show past spending and savings. They help in planning future budgets and goals. Understanding cash flow patterns helps account holders make informed decisions. They can use this information to save for big purchases and investments and to prepare for emergencies.

2. Purpose of bank statements for the financial institutions 

Bank statements are critical for banks and other financial institutions' operational, legal, and customer relations purposes.

2.1 Regulatory compliance

  • Ensuring transparency: Financial institutions are required by law to maintain and provide accurate records of all financial transactions. Bank statements prove these transactions, helping institutions comply with legal standards and auditing requirements.
  • Record of financial operations: These documents are critical during audits and inspections, proving that the bank operates transparently and within the bounds of regulatory frameworks.

2.2 Customer relationship management

  • Providing clear information:  Financial institutions keep their customers well-informed about their account activities by issuing detailed bank statements. This transparency fosters trust and loyalty among customers.
  • Managing risks: Bank statements also allow financial institutions to monitor customer activities, helping them manage risks associated with overdrafts, defaulting loans, and other forms of financial instability. By understanding customer habits, banks can offer customized products and advice to help customers manage their finances better.

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Benefits of bank statements

Electronic bank statements are sent to account holders by banks at the end of every month via email. Bank statements show account activity and ensure no mismatches in credit and debit amounts in accounts.

Here is a list of benefits offered to account holders who choose to view their bank statements online:

1. Avoids financial fraud

Bank statements print the monthly withdrawal and deposit amounts that an account processes. Intelligent document processing solutions banks use list financials on these records, which helps users identify mismatches or discrepancies in amounts. 

You can compare the bank's transactions recorded to your records and use them to spot financial fraud. If there are no mismatches, then the records are accurate and validated.

2. Reduces accounting errors

Manual data entry of financials is prone to human error, and electronic bank statements are more reliable. Organizations use automated bank extract statement solutions to extract financials automatically, validate, verify, and input them in records. 

This means users don't have to worry about mistyped amounts, missing values, or accounting errors, as the entire process of extracting data from bank statements, reading, and recording transactions is automated. Several banks use Document AI software for this purpose, which is also fast, accurate, and reliable.

3. Shows account balances, penalties, and settlements

One advantage of reviewing bank statements is that users get a complete list of their transactions. Users can review account balances, penalties, charges, and settlements, learning how their money flows in and out of their accounts. 

Account holders aren't surprised by hidden charges and are made aware of unauthorized transactions. This makes managing their accounts much easier and hassle-free.

What are the uses of bank statements?

Bank statements are more than just a record of financial transactions; they're a repository of valuable information that can offer deep insights into an individual's or business's economic health, habits, and behaviors.

The practical applications of bank statements are numerous and vital for individuals and businesses. Here's a look at common bank statements uses:

uses of bank statements

1. Income streams

Bank statements show all incoming funds, including salaries, client payments, dividends, interest, and other revenue. Understanding income streams can help people and businesses understand their main sources of money.

2. Expense breakdown

Bank statements have detailed transaction records. They give a clear breakdown of spending. This includes daily purchases, recurring bills, and big expenses. Categorizing and analyzing these expenditures can shed light on spending habits and highlight areas for potential cost-saving measures.

3. Financial behavior

Bank statements offer valuable insights into financial behaviors such as saving, investing, and borrowing. Regular transfers to savings accounts or investment portfolios,  loan repayments, and credit card payments reflect individual or organizational financial habits.

4. Cash flow management

Tracking the timing and frequency of cash inflows and outflows enables better cash flow management. By analyzing bank statements, individuals and businesses can identify periods of surplus or deficit, facilitating strategic decisions to optimize cash flow.

5. Budgeting and planning

Armed with data extracted from bank statements, individuals and businesses can develop informed budgets and financial plans. Analyzing past spending patterns and income streams allows one to set realistic financial goals, allocate resources effectively, and track progress over time.

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6. Fraud detection

Anomalies in bank statements are things like unauthorized transactions or unusual activity. They can show potential fraud or security breaches. Data extraction techniques can help automate the detection of irregularities, enabling prompt action to mitigate risks.

7. Compliance and reporting

Extracting data from bank statements is crucial for regulatory compliance and financial reporting for businesses. Accurate and timely extraction of transaction data ensures adherence to accounting standards and facilitates the preparation of tax returns, audit reports, and other regulatory filings.

8. Decision support

Bank statement analysis provides valuable insights that support informed decision-making. Whether it's assessing the feasibility of a new investment, evaluating the impact of a major purchase, or determining the affordability of a loan, data extracted from bank statements serves as a reliable basis for decision support.

How to get a bank statement?

A bank statement can be obtained through several methods, such as traditional paper statements or modern digital options. These methods allow you to access your financial records conveniently and efficiently.

1. Traditional methods of getting a bank statement

Here are the traditional methods of getting a bank statement.

  • Visit your local branch: You can obtain a bank statement by visiting the bank where you hold your account. Simply go to the teller and request a printout of your statement for the desired period. Make sure to bring identification and your bank account number for verification.
  • Request via phone: Another traditional method is to call your bank’s customer service number. After verifying your identity over the phone—which typically involves answering security questions—you can request that they mail a printed statement to your address.
  • ATM printouts: Many ATMs offer the option to print a mini-statement, which usually shows your recent transactions. While this isn’t a complete bank statement, it’s handy for getting a quick snapshot of your recent activity.

2. Digital methods of getting a bank statement

Here are the digital methods of getting a bank statement easily.

  • Online banking: Log into your online banking platform using your username and password. Once logged in, navigate to the statements section, where you can view, download, or print your bank statements for any period you need.
  • Mobile banking apps: Almost all banks now offer mobile banking apps that allow you to access your bank statements. Download and install your bank’s mobile app, log in with your credentials, and you will find options to view your statements. You can download these as PDFs directly to your mobile device.
  • Email notifications: Many banks offer to send your monthly statements directly via email. You can sign up for this service online or by informing your bank via phone or in person. For security purposes, these statements are usually password-protected PDF files.

How to process bank statements?

Bank statement processing refers to the systematic handling and analysis of information contained within bank statements. This process involves extracting transaction details, such as dates, amounts, and descriptions, from bank statements received in physical or digital form.

Here's how you can process a bank statement:

1. Bank statements collection

First, gather the bank statements that need to be processed. These can be in formats like PDFs, paper documents, or images. Ensure that all necessary statements are collected for the period you want to analyze or report.

2. Processing preparation

Then, prepare paper-based statements by ensuring they are clean and legible. If necessary, convert these documents into digital format using a scanner. For electronic records, ensure they are formatted correctly and ready for data extraction.

3. Data extraction

The next step is to extract data from the bank statements. This can be done manually or through automated processes:

  • Manual data extraction: This involves manually entering data from bank statements into financial systems or spreadsheets. This method is time-consuming and prone to human error.
  • Automated data extraction: This process uses optical character recognition (OCR) technology and Robotic Process Automation (RPA) to extract data from statements automatically. It is faster, more accurate, and more efficient.
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4. Data verification and reconciliation

After data extraction, verify the accuracy of the extracted data by cross-checking with the original documents. This step is crucial to ensure that all transactions are recorded accurately. Reconcile the extracted data with the internal records to identify discrepancies or unusual transactions.

5. Data analysis

Once the verification and reconciliation are done, analyze the processed data to gain insights into financial patterns, expenses, and revenues. This analysis can help budget, forecast, and make informed financial decisions.

6. Reporting

The final step is the reporting. Compile the analyzed data into reports for internal use or compliance with regulatory requirements. Ensure these reports are clear, accurate, and formatted according to the organization's needs or regulatory standards.

Key takeaways

A bank statement is an important document that records all your account transactions for a specific period. It helps you keep track of your money, spot any unusual activity, and better plan your finances. Understanding your bank statement is vital for good financial health. It helps with balancing your budget and catching errors and fraud. 

To make managing your finances even more accessible, consider using Docsumo. It helps quickly extract important data from your bank statements, saving time and reducing mistakes. 

See how Docsumo helped Hitachi Payment Services observe a marked reduction in document processing time and a 99% increase in accuracy.

FAQs on bank statements

What is an official bank statement?

An official bank statement is a document from your bank that lists all transactions, including deposits, withdrawals, fees, and interest earned. It is a formal record of all activities in your account and confirms your financial movements and current balance.

How are bank statements created?

Banks generate statements through automated systems that track every transaction within an account. The bank adds up these transactions at the end of each statement period. It finds the ending balance and sends the statement by mail or electronically. It reflects all financial activities, ensuring customers have accurate and up-to-date financial information.

What is the difference between a bank statement and a transaction history?

A bank statement and a transaction history record account activities. But they serve different purposes and cover different periods. A bank statement is an official record. The bank issues it periodically (e.g., monthly). It includes opening and closing balances and detailed transactions. 

In contrast, a transaction history is a running list of all transactions that may be accessed at any time and can cover any period the account holder chooses to view. Bank statements are formal records for specific periods. Transaction histories provide a flexible, real-time overview of all account activities.

Does my bank statement contain any sensitive information? 

The top of your bank statement contains sensitive information such as the bank account number and branch name. All bank statements list opening balances, withdrawals, deposits, periods, and closing balances.

Can anyone see my bank statement? 

Banks never divulge your statements to unauthorized individuals or third parties. The only way someone can view your bank statements online is if they have your account details, card number, net banking details, and PIN. 

How often should I check my bank statement?

Some individuals prefer checking their bank statements once a month if everything is in order. However, it is recommended that you check your bank statements at least once a week to maintain a good awareness of your financials and spending habits. 

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Written by
Pankaj Tripathi

Helping enterprises capture data for analytics and decisioning

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