If you want to take ownership over your financial situation, start by learning everything you can about your financial accounts. When you receive your bank statements, don't be so quick to toss them away in a file but rather open them from time to time to check the various details. When looking through your statement, be sure to scan through your credit and debit memos. The demo memos represent adjustments where money gets taken from your bank account or decreases an amount due, and they can happen due to transactions such as purchases and regular cash withdrawals.
Understanding Bank Statement Sections
When you get your bank statement, understand the various sections. The bank often provides a summary area at the beginning that provides totals of deposits, withdrawals and payments. Another section shows the daily balance summary, which estimates the average balance you maintained in the account on any given day during the statement period.
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Finally, the account activity section details all memos (transactions) that occurred during the statement period. It lists dates, descriptions, debits, credits and balances.
What's a Debit Memo?
In short, a debit memo on a bank statement is any transaction that reduces the amount due. This amount is sometimes accompanied with a negative symbol to show that it lowered the balance. The opposite of a debit memo is a credit memo, which is any addition to the account balance. On the bank statement, debit memos commonly are listed first next to each transaction, then the credit memo and finally the running balance.
Exploring Types of Debit Memos
Once you start scanning your bank statement, you may notice that many different types of transactions show up as debit memos. One of the most common types of debit memos is a withdrawal, such as when you take cash out from an ATM machine or through a bank teller. Another type of debit is a charge on a debit card, which is linked to the bank account. A check written to another party also shows up as a debit memo on the statement.
Automated Clearing House (ACH) transactions, which are basically electronic check withdrawals, are included as debit memos as well. For example, if you have a utility company use your checking account to pay your monthly bill, then that monthly payment will show up as a debit memo.
Budgeting Using Your Bank Statements
When you scan the debit memos on your bank statement, you may start to notice trends that could encourage you to change your behaviors during the next statement period. For instance, if you see a number of small debit card transactions that add up to a large expense, it could be more economical to make one large withdrawal instead at the beginning of the month and use your cash to make purchases. Taking out a specific amount of cash helps limit your spending whereas using a debit card gives you unlimited spending ability up to your available balance.
You may also notice that some ACH transactions and ATM withdrawals are draining your account due to additional fees. Checking out your debit memos could help you make better budgeting decisions.