How to read a business bank statement

A business current account statement has the same columns as a personal one: date, description, debit, credit, balance. What differs is what those rows represent. Half the credits are not income and a good share of the debits are not costs, and reading it as though every credit is revenue produces a number that is confidently wrong.

Start with the structure

1. Confirm the account and the period on the header, and that the period follows on from the last statement with no gap.
2. Check the opening balance matches the previous closing balance.
3. Check the closing balance equals opening plus credits minus debits. If it does not, the statement is incomplete or a row was misread.
4. Only then start reading individual lines.

Lines that are not what they look like

• Own account transfers. Money moved to a deposit or tax reserve account is not spend, and moving it back is not income. Counting both is the most common cause of inflated turnover.
• Processor deposits. One credit can represent dozens of sales net of fees. Treating it as a single sale hides both revenue and cost. See settlement reports.
• Loan drawdowns. A credit that has to be repaid is financing, not revenue.
• Director or owner drawings. A debit that is a distribution, not a business expense.
• Refunds to customers. A debit that reduces income rather than adding a cost.
• Payroll. A single net figure that hides gross pay, tax withheld and employer contributions, all of which are separate obligations.
• Tax payments. Collected tax being passed on is not an expense, it was never yours.

Codes and narrations

Business narrations are dense: reference numbers, batch identifiers, sort codes, UTR or UPI strings and the counterparty name compressed into a few characters. The counterparty is usually in there somewhere, which is why Karchu extracts it as its own field. For the abbreviations themselves, see the bank statement abbreviations guide.

The monthly routine

1. Download the statement for the full month, not a filtered view.
2. Pull the processor payout report and the accounting export for the same dates.
3. Mark transfers so they drop out of income and spend.
4. Split processor deposits into gross and fee.
5. Match payments to invoices and bills.
6. Read the totals, then investigate the three largest surprises rather than every line.

Doing it faster

Karchu automates most of this: transfers are detected and excluded, processor fees are split out, counterparties are extracted, and the result appears as money in, money out and net movement. Supported document types are listed on the business document analyzer page.