Interpret entries in bank statement

Bank Statement – What is a bank statement?

A bank statement is a list of items that have been processed through a bank account

Starting and maintaining solid, professional accounting practices is essential for the growth of a business. Make sure yours are in order with Debitoor.

The bank statement is usually issued by a bank on a monthly basis. It’s also common practice for a business to have a bank statement compiled to coincide with their accounting period end.

Bank statements are typically sent out in the post or accessed online (paperless statements). It is important to check your bank statement on a regular basis – especially if you have a high number of transactions.

The bank statement shows all deposits made into the bank account and all payments made out, including any direct debits or standing orders.

What’s included

A bank statement typically provides a full overview of your account over the previous month. It will include:

  • The beginning and ending balances of the account
  • Deposits in the form of income, cash deposits, etc.
  • Withdrawals in the form of cash, cheques, etc.
  • Any interest that was made on the account
  • Any bank fees or charges for service

Accounting for bank entries

For depositing entries (money paid into your bank account) the accounting entries you would make would be a debit to your bank account and a credit to the sales ledger or to customer who has paid the money.

Likewise, when paying money out of your bank account, the entries made in your accounting system would credit your bank account and debit the supplier who has paid, thus clearing their invoice.

However, if you look at your bank statement you will see that these entries are opposite to the ones you will be processing. This is because, from the bank’s point of view, your business is a creditor.

Because a bank treats user transactions as a business, bank customers then see the customer side, making it one of the main reasons it’s often difficult to understand debit and credit.

Bank statements and Debitoor

By uploading a bank statement to Debitoor, you can take advantage of automatic bank reconciliation. Items in your bank statement are automatically matched with the corresponding invoices or expenses in your account.

Learn more about using auto-matching and managing accounting for your small business with Debtor.

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