How To Journalize Bank Service Charge

Depository financial institution Charges Journal Entry does non have whatsoever unusual accounting handling. Then, its like to any other expenditure journal entry . Depository financial institution Charges are expenses to the account holder and income to the Depository financial institution.

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What's the Bank Charges Journal Entry?

In the Books of Business relationship Holder,

(All the Fees or Charges by Bank to its Business relationship Holders are debited to one GL – Banking concern Charges A/c. However, it's not a difficult and fast dominion that all banking company charges need to exist recorded in only 1 GL. So, Entities can record this kind of transaction in multiple GLs such as Greenbacks Handling Charges GL, Overdraft Fees GL etc. The primary reason for recording at multiple GLs is to rail the expenses separately.)

Agreement the Banking concern Charges Periodical Entry in the books of Account Holder

Cash Handling Charges:

Banks allow certain limits for deposits or withdrawal cash. Then, at that place are no charges if the transactions are inside the said limit. For case, Bank mandates for charges if the greenbacks deposited in the current business relationship exceeds Rs.1,00,000 per day. Cash handling charges are Rs.i per each Rs.1,000 deposit amount on the same 24-hour interval.

Each depository financial institution has a different policy for the service charges. So, Greenbacks treatment charges are the charges levied by banking company for providing cash eolith services to the business relationship holder.

Why are Cash treatment charges levied?

All these increased charges are to encourage online transactions every bit office of digital transformation growth.

When are these Cash handling Charges levied?

These charges are levied as and when the transaction happens. So, the bank deduct the cash handling charges from the deposit amount and deposits the balance 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 full of all transaction.

Desire an example to understand this statement?

Here it is…

Lets take reference of bank charges policy from the above example. Assume XYZ is account holder of ABC Bank.

Scenario I – The full of deposits is Rs.99,800 on the day. No Charges are levied

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

Assume the total of deposits is Rs100,100 on the day and 11 deposit transactions happened on that mean solar day for this XYZ account holder.

The value of 10 deposit transaction is Rs.99,800.

The concluding transaction value is Rs.300.

So, charges are not levied till 10 transactions. Fees are deducted after occurrence of the 11th transaction.

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

Full charges = 100,100*1/thousand = Rs.100.10

In the Books of Bank,

(Hither, Banking concern Account debited represents the Cash arrival to the Banks for Other Income. Here Other income ways the not primary source of income such as Savings Account Maintenance Fees. Banks bulk income comes from the involvement earned on various types of Loans sanctioned such as Personal Loans, Abode loans, Golden Loans, Agriculture Loans, Overdraft, Cash Credit etc.)

Understanding the Bank Charges Journal Entry in the books of Bank

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

Bank Charges

Depository financial institution Charges are the transactional fees for the various services provided by bank . Information technology does not include the involvement charged on the loans.

What are Banking company Charges?

Service Charges levied by Banks for transactions such as Maintenance Fees (E.g., Debit and Credit Card Annual Fees), Transaction Fees (Due east.one thousand., Cash Handling Charges), Fees for Issuing depository financial institution statements etc. The List is never-catastrophe. Notice example of banking concern charges here.

Why are the Banking company Charges Levied?

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

All the facilities used by the account holders at Banking concern crave payment of bank charges or fees .

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

The interesting fact for this expense is that at that place will non be any liability account in this JE. This is considering most oft the fact that charges are payable is known after the happening of transaction. Business relationship holders become this information from Bank statements.

Decision for Bank charges Journal Entry:

Bank Charges Journal entry is similar to an expenses JE. We record this entry past debiting the Bank charges GL and Crediting the Bank GL.