Is Bank Statement and Financial Statement the Same? Here’s What Sets Them Apart

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There are two commonly used documents to help understand an individual/company’s financial condition: bank statement and financial statement. While both documents have similarities in presenting an overview of financial standing over a specific period, the differences lie in the scope of the information they provide.

Then, what sets bank statements apart from financial statements? Find out the differences between them and their important role, especially for financial services companies.

What Is a Bank Statement?

Bank statement is an official document summarizing the transaction history of an account. The first section always shows information regarding the account details, such as the account number and holder’s name. Below, you will find the complete record of all transactions, typically over a month, including incoming money, outgoing money, admin charges, cash withdrawals made, opening balance, and closing balance. From this document, you can see their average monthly income and expenses, as well as how well they manage their finances.

Read also: 8 Important Metrics For Bank Statement Analysis

What Is a Financial Statement?

If a bank statement provides a summary of transactions, a financial statement offers more complex and in-depth information. This document presents a more comprehensive report of the company’s financial performance for a 12-month period. There are four primary components in a financial statement:

  • Income statement (company’s revenue, profit, expenses)
  • Balance sheet (assets, liabilities, and equity)
  • Cash flow statement (cash inflows and outflows)
  • Equity statement (changes in company’s equity)

Given its broader insights, this type of document enables you to understand their financial health comprehensively, from their stability, profitability, liquidity, and many more.

The Benefits of Bank Statements and Financial Statements for Lending

These two documents provide concrete evidence of an individual’s or company’s financial background, making them essential for lending companies when reviewing a customer’s reliability. By utilizing bank statements or financial statements, lenders can more accurately assess a customer’s financial capability and determine the appropriate loan amount and interest rate for them.

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Pros and Cons of Bank Statements

Pros:

  • It can be accessed anytime
  • Has a similarly structured layout across banks
  • Available in both digital and paper-based formats
  • Provides a detailed history of bank account activity
  • Facilitates easier assessment of the alignment between business model and transaction patterns
  • Serves as a reliable source of information

Cons:

  • Limited insights, as it only shows transaction data
  • Challenging to project long-term financial conditions based solely on monthly information
  • Prone to data manipulation, identity theft, and other risks of fraud

Read also: How to Detect Fake Bank Statements

Pros and Cons of Financial Statements

Pros:

  • Provides an all-encompassing report of a company’s financial position
  • Contains diverse financial information from multiple sources
  • Enables the analysis of past credit repayment history
  • Facilitates easier forecasting of future financial performance

Cons:

  • More complex and difficult to interpret
  • Different accounting standards across financial statements
  • Lengthy and spans numerous pages to review

In conclusion, bank statements record account-specific transactions, whereas financial statements describe more detailed information on the business’s financial position, covering assets, liabilities, and equity. Both are important and provide significant help for lenders to determine borrowers’ creditworthiness.

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