Statement of account

3 key takeaways

• A statement of account provides a summary of all transactions, including sales, payments, and adjustments, between a business and its customer over a specific period.
• It helps both parties reconcile their accounts, ensuring accuracy in financial records and transparency in business dealings.
• Statements of account are regularly issued, typically monthly, to keep customers informed of their account status and any outstanding balances.

What is a statement of account?

A statement of account is a financial report that details all the transactions that have occurred over a specified period between a business and its customer or between financial institutions. This statement includes all debits, credits, payments, and adjustments, culminating in the final balance owed or due. Statements of account are essential for maintaining accurate financial records and ensuring transparency and accountability in business transactions.

Components of a statement of account

A typical statement of account includes several key elements:

• Account information: Includes the account number, customer name, and contact details.
• Date range: Specifies the period covered by the statement, such as a month or a quarter.
• Opening balance: The balance at the beginning of the statement period.
• Transaction details: A chronological list of all transactions, including dates, descriptions, amounts debited or credited, and references or invoice numbers.
• Payments and credits: Records of any payments received from the customer and any credits issued.
• Adjustments: Any adjustments made to the account, such as corrections or refunds.
• Closing balance: The balance at the end of the statement period, reflecting all debits, credits, payments, and adjustments.

Uses of a statement of account

Statements of account serve several important purposes in financial management:

• Account reconciliation: Customers and businesses use statements of account to verify the accuracy of their records and ensure that all transactions have been correctly recorded.
• Payment reminders: Statements act as reminders for customers of any outstanding balances that need to be paid, helping businesses manage cash flow.
• Financial transparency: Regularly issuing statements of account promotes transparency and trust between businesses and their customers by clearly showing all financial activities.
• Record keeping: Statements provide a detailed transaction history that is useful for financial auditing, tax reporting, and future reference.

Example of a statement of account

Consider a business that issues a statement of account to a customer for the month of June. The statement might include the following simplified details:

Account Information

• Account Number: 123456
• Customer Name: ABC Corporation

Date Range

• June 1, 2023, to June 30, 2023

Opening Balance: $500.00

Transaction Details

• June 5, 2023: Invoice #789 – Sale of goods – $1,000.00 (debit)
• June 10, 2023: Payment received – $500.00 (credit)
• June 15, 2023: Invoice #790 – Sale of services – $300.00 (debit)
• June 20, 2023: Credit note #CN123 – Return of goods – $100.00 (credit)

Closing Balance: $1,200.00

In this example, the statement of account provides a clear summary of all transactions between the business and the customer during June, including sales, payments, and credits, leading to a closing balance of $1,200.00.

A statement of account is a critical financial document that ensures accurate record-keeping and transparency in business transactions. By detailing all debits, credits, and adjustments, it helps businesses and customers reconcile their accounts and maintain trust.

Regularly issuing and reviewing statements of account is a fundamental practice in effective financial management.