A Statement of account is a document that shows the list of transactions that have occurred between the buyer and the seller. It is also known as the customer statement which lists every transaction between the client and the business.
Statement of account is used for the following purposes:
- To find out the outstanding balance
- Inform the customer to settle their account balances
- To remove communication gaps between customers and avoid disputes
If the customer has to pay a single invoice then it is best to send a reminder but if a customer has multiple invoices to be paid then the account statement is a good option.
When is a statement of account issued?
Some business organizations do not send a statement of accounts to their customers. A statement of accounts is used by the organization to know the activities of the customer with their business. While some business organizations use account statements on a regular basis, these kinds of businesses operate their transactions with customers on a credit purchase basis.
Small business organizations send a statement of account to customers only if a customer has requested. Sometimes a statement of account is also sent to the customer to remind them about their outstanding balances. These statements are used regularly to monitor the customer’s account.
What does a Statement of account include?
Similar to Invoices that have strict legal guidelines and there are also official requirements for a statement of accounts. The statement of account includes enough information to give detailed and up to date information about customer accounts information and transaction history.
Basically the type of information that is expected from the customer statement includes the following:
- Total balance
- Document Identification Number
- Details of contact information
1. Total Balance- The total balance on the account which shows a positive balance it means that customers owe business money. If the balance is negative that means the business has to pay money to the customer. If the balance is 0 then the payments have been settled and there are no dues.
2. Date- A account statement can cover a specific period of time, a month, year, or quarter. Sometimes business wants to show every single transaction between customers and the business. In any given circumstance the dates should be clear.
3. Transaction- The transactions that are made within the specified time date range include sales, refunds payments. The value of the transaction and the list of items purchased with the dates have to be mentioned.
4. Document Identification Number- This number is a supporting evidence of the transaction. It supports each transaction and it includes numbers from the invoices. It also includes the numbers from the payment receipts and credit notes.
5. Details of contact information- Contact information about the customer and the business are included on the statement of account. The details such as the company name, address, phone number, email address, and other information.
6. Currency- When the business is operating in multiple countries then this information is required. This information is important if customers are from other countries. Though you may have transactions in multiple currencies, the account statement currency should be in one.
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How to create a statement of account?
In today’s fast track business environment, there are many different kinds of accounting and invoicing software that can certainly be used to create a statement of account.
You can save each of the customer details in the software. You can generate statements of account for every customer with their name, contact details and description of the items.
Each software has its own navigation keys to create a statement of account for the customer. You can convert the document into PDF format and view the complete transactions between the business and the customer.
Examples of accounting software are QuickBooks accounting software, Zoho- a revolutionary FTA Accredited Accounting Software for UAE, SAP ERP, Tally ERP, Microsoft Dynamics and others.
Once the statement of account is created by the business owners it is sent to the customer to let them know the details of the credit sales during the specified period. This is also to remind the payment for credit sales.
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Significance of statement of accounts
A statement of account is a recap of the goods and services that were invoiced to the customers. It is great to communicate the payment reminder to the customers. This statement also helps the business owners to understand the outstanding receivables for the business.
Generally the statement is prepared for the month. And at the end of each month the statement is sent to the customers reminding them of the payment.
For recurring customers who are regularly doing transactions with the business, this statement of account comes handy as it can be prepared monthly or quarterly or semi-annually or annually.
On a periodic basis, the statements of accounts are automatically generated. It is easy to view sent invoices and payments receiving invoices all in a single page. The business owner can also get payments in advance and send reminders for outstanding payments.
If there is any inconsistency in business reporting, the summary report of the statement helps the accountant to check if the customer has paid his outstanding dues. In this method it is easy to detect the inconsistencies in the business data.
The statement of account helps the business to check whether the amount declared has been accidentally entered twice. It will help in catching the manual errors made by the business.
A price record of each item can be identified with the help of the statement of account, this helps in tracking the information related to the customer for any given period of time.
Statement of Account overview
- The statement gives your details about the name, address of the customer and the business.
- It shows the time period for which the customer statement of account is prepared. Some businesses use the last date of the month as the closing date. Hence the same date is listed in that column. There is no rule for selecting a statement date.
- Account summary contains the opening balance, amount paid, balance due and total invoice amount. The opening balance is the amount carried from the previous month. In other words, the closing balance of the previous month becomes the opening balance of the current month.
- The amount that is expected to be paid is the balance due on the statement of account.
A Statement of account looks like a bank statement but it is not a bank statement. It is issued by the business owner to the customer. It helps in requesting the payments to the customers and also assists in identifying the mistakes, preventing fraudulent transactions and maintaining the accuracy of the data. Based on the requirements of the business statement of the account can be prepared, there is no specific format for the statement of account. Businesses can include any information according to their requirements and request of the customer.