Accounting Statement Definition
An accounting statement or account statement refers to a document that summarizes the financial
details of an account during a given period. An example of an accounting statement is a bank
account statement. A bank account statement reflects the source and amount of every transaction
within a selected period. Different accounting statements serve different purposes, but they all act as a written proof that helps resolve disputes.
- An accounting statement provides a detailed overview of a customer’s financial activity within
a defined time period.
- Some components of an accounting statement are service fee, paid and unpaid invoices, invoice
amount and numbers, and net remaining balance. They also contain historical transactions that
can help calculate the outstanding balance.
- Accounting statements are legally bound and work as proof of transaction. They assist in
several circumstances, such as settling disputes between lenders and borrowers, budgeting, and
cross-verification of the amount involved.
In our day-to-day lives, we undertake many financial transactions such as payment of utility bills, ATM cash withdrawals, credit card purchases, etc. It is essential to keep a track of them to stay on top of your expenses and earnings. As such, financial institutions provide different types of accounting statements to summarize such transactions.
Accounting statements are generated for checking account statements, insurance account statements, brokerage account statements, bank account statements, and credit card statements. These statements help customers track their financial records for personal or legal purposes.
Features of Accounting Statement
Let us dive into some of the features of an accounting statement.
- Accounting statements apply to nearly all types of financial accounts with ongoing transactions (individual and corporate). Businesses such as telecom, cable television, utility, payments services, credit cards, and insurance companies usually generate accounting statements.
- The contents, format, and template of an accounting statement vary according to its purpose. For example, an electricity bill is generated every month after the consumer’s account has been adjusted for arrears. The electricity bill will usually contain total consumption in a billing cycle, fixed charges, arrears, due payment, last date, late fee, etc. A bank account statement, on the other hand, will contain debits paid, funds credited, taxes charged, and the current account balance for a specific duration.
- An account statement provides an easy-to-understand report of account activity to manage finances and detect financial anomalies. They are legal and hence could come in handy at the time of conflicts such as being doubly charged on your mobile phone bill.
- Customers usually have to opt-in for a particular method of communication to receive their account statement. With the advent of the internet and paperless drives, more and more companies send them through emails instead of regular posts.
- Accounting statements differ from a financial statement in that the latter comprises a balance sheet, an income statement, a cash flow statement, and an equity statement. An accounting income statement outlines the service and maintenance fees, credits due, money received, and prepayments over a given period.
An accounting statement format varies with the company, its jurisdiction, and the information provided. However, they all give an accurate and complete overview of a customer’s account, including the transaction history with a beginning and ending date. Most companies follow a similar accounting statement template.
Accounting statements also bear a mark like a stamp for hard copies or a QR code for soft copies to confirm their authenticity.
Common elements of an accounting statement include:
- A payment slip with the customer’s name, address, and amount paid.
- A list of unpaid invoices with the total balance due.
- Credit number, credit date, total invoiced amount, the invoice amount paid, the date range for the statement, and opening and overall balance.
- Payment details for invoices billed by the service provider and paid by the customer within a specific duration.
- The net remaining balance from unpaid invoices.
An accounting statement is sent to the account holder for several reasons. Among all is the agreement between the account holder and the service provider to have it sent periodically after an agreed-upon date. Below is an accounting income statement sample issued to the consumer by the service provider:
Uses of Account Statement
Identifying Financial Irregularities
An accounting statement keeps the customer and the business on the same page when it comes to revealing the status of the former’s account. By checking the account statement regularly, the account holder can spot any financial irregularities and fix them quickly.
For instance, a customer borrows money from a financial institution and makes regular payments
to the firm. The account holder can use the statement to track all the transactions. If any details
are missing due to clerical error or fraud, they can discuss it with the lender.
They are helpful for budgeting priorities. Accounting statement of cash flows hence helps in keep tracking of the funds. In the case of a bank account statement, an individual or business may review it monthly. It helps a company recognize excessive cash outflow elements that they could minimize to boost their finances.
For instance, in the COVID-19 hit economy, various industries suffered revenue loss due to an unprecedented decline in customer purchasing power. Companies can use accounting statements to reduce non-essential spending or consider offering discounts to their customers to increase sales.
Similarly, an individual can see where most of their money goes and make plans to save more. Furthermore, assessing the effectiveness of financial prudence measures is possible with these statements.
Transactions can result in payment differences that the customer must resolve by legal means right away. Moreover, lawyers can use these documents to advise their clients on the matter. The accounting statement, in this case, would provide tangible, non-partisan information related to transactions to the parties involved to help reach an arbitration.
An accounting statement will also enable an individual or business to secure a debt. Most lenders use this information to gauge the financial position of the borrower. It also provides a glimpse into the maximum debt that the potential borrower can pay. In turn, this will provide a debt limit that the lender can consider offering.
Blacklisting Problematic Clients
An income statement is beneficial in identifying problematic clients. Information like late payments and financial disputes will help the lender learn about the borrower before lending a loan. Based on this, the lender could decide whether to extend the credit to the borrower. These statements become more relevant over time because they help an individual or company to assess its financial value in the future.
Screening Overseas Students
Individual accounting statement is critical in screening students seeking abroad education. A personal accounting statement reveals the financial history of the student or their caretaker. In this case, both the university and the country students emigrating need to be sure of their financial ability. The students need to be sure of whether they will bear the costs of earning an education and staying in the country.
This has been a guide to Accounting Statement and its definition. Here we discuss the format and some common uses of accounting statements with a detailed explanation. You may learn more about financing from the following articles –