How To Record A Bank Service Charge

Banking company Charges Journal Entry does not have any unusual accounting treatment. And then, its similar to any other expenditure journal entry . Bank Charges are expenses to the business relationship holder and income to the Bank.

Estimated reading time: 4 minutes

What'due south the Banking concern Charges Periodical Entry?

In the Books of Account Holder,

(All the Fees or Charges by Bank to its Business relationship Holders are debited to one GL – Bank Charges A/c. All the same, it's not a difficult and fast dominion that all bank charges need to exist recorded in simply one GL. So, Entities can record this kind of transaction in multiple GLs such as Cash Handling Charges GL, Overdraft Fees GL etc. The chief reason for recording at multiple GLs is to runway the expenses separately.)

Understanding the Bank Charges Periodical Entry in the books of Account Holder

Cash Handling Charges:

Banks allow certain limits for deposits or withdrawal cash. Then, there are no charges if the transactions are within the said limit. For instance, Banking company mandates for charges if the cash deposited in the electric current business relationship exceeds Rs.1,00,000 per mean solar day. Cash handling charges are Rs.one per each Rs.1,000 deposit amount on the same day.

Each bank has a different policy for the service charges. So, Greenbacks handling charges are the charges levied by bank for providing greenbacks eolith services to the business relationship holder.

Why are Greenbacks treatment charges levied?

All these increased charges are to encourage online transactions as part of digital transformation growth.

When are these Greenbacks handling Charges levied?

These charges are levied every bit and when the transaction happens. So, the banking concern deduct the cash treatment charges from the deposit amount and deposits the residue into the customer business relationship.

Runners Insight

Greenbacks handling charges are triggered as and when the limits are exceeded and the fees are deducted on total of all transaction.

Desire an example to understand this statement?

Here information technology is…

Lets take reference of banking concern charges policy from the in a higher place case. Assume XYZ is account holder of ABC Banking company.

Scenario I – The total of deposits is Rs.99,800 on the twenty-four hours. No Charges are levied

Scenario Two -The total of deposits is Rs.100,100 on the day. Charges are levied as and when the limit is triggered.

Assume the full of deposits is Rs100,100 on the twenty-four hours and xi deposit transactions happened on that day for this XYZ account holder.

The value of x deposit transaction is Rs.99,800.

The last transaction value is Rs.300.

And so, charges are not levied till ten transactions. Fees are deducted after occurrence of the 11th transaction.

Charges are levied on all transactions not just on the 11th transaction which triggered the limit.

Total charges = 100,100*1/1000 = Rs.100.ten

In the Books of Bank,

(Here, Bank Account debited represents the Greenbacks inflow to the Banks for Other Income. Hither Other income means the not primary source of income such every bit Savings Business relationship Maintenance Fees. Banks bulk income comes from the interest earned on various types of Loans sanctioned such as Personal Loans, Home loans, Gilt Loans, Agriculture Loans, Overdraft, Cash Credit etc.)

Understanding the Bank Charges Journal Entry in the books of Bank

At present that nosotros learned about the accounting treatment of bank charges, we will move on to empathise some basics such as what are bank charges, why are they levied etc.

Bank Charges

Bank Charges are the transactional fees for the diverse services provided past bank . Information technology does not include the interest charged on the loans.

What are Bank Charges?

Service Charges levied by Banks for transactions such as Maintenance Fees (East.g., Debit and Credit Carte du jour Annual Fees), Transaction Fees (Eastward.g., Cash Handling Charges), Fees for Issuing depository financial institution statements etc. The List is never-ending. Find example of bank charges here.

Why are the Banking concern Charges Levied?

Any business can sustain itself based on profits and income in the long run. A major source of income for banks subsequently Involvement income is the transaction charges.

All the facilities used past the business relationship holders at Depository financial institution require payment of depository financial institution charges or fees .

Note: Banks are also required to charge the GST on the full value of bank charges levied. So, account holder tend to record the bank fees along with all taxes levied.

The interesting fact for this expense is that in that location volition not exist any liability account in this JE. This is considering most often the fact that charges are payable is known after the happening of transaction. Account holders get this information from Bank statements.

Conclusion for Bank charges Journal Entry:

Bank Charges Journal entry is similar to an expenses JE. Debit the Bank charges GL and Credit the Bank GL.

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