Accounting for Bank Fees
Bank fee is the amount that the bank charge to the customer for a variety of service the bank provided. It is the other income that bank earns from the customers.
The company creates bank fee chart account to record the fee that bank charge to them.
The bank may charge different kinds of fees to the customers such as account maintenance fees, transfer fees, withdrawal fees, and so on. The account maintenance fee is the fee that the bank charge to the customer to keep the account active. It is usually a very low amount. Bank charge this amount to ensure the customer account remains active in the banking system.
Transfer fees are the amount of fee that bank charge when a customer transfer balance from one account to anthers. It can be a fixed fee or a percentage of the transferred amount. The rate is also different deepened on the nature of the transfer. The transfer across the country will be more expensive than the local transfer.
The other fees which bank charges to the customer are the card fees. The card includes VISA, Master, or ATM card. The rate will be different
These are examples of fees that companies need to pay to the bank to use their services. The company will require to record them as expenses on the income statement.
Bank Fees Journal Entry
The bank fee charge will be recorded as an expense on the customer’s income statement. When the bank charges a fee, they simply reduce the customer balance simultaneously.
The journal entry is debiting bank fees and credit cash at bank.
| Account | Debit | Credit |
|---|---|---|
| Bank Fees | ### | |
| Cash at Bank | ### |
Bank Fees Example
Company ABC is a retail store that sells varieties of products to consumers. During the month, the bank charge a bank fee of $ 500. The bank reduces the cash at the bank balance to settle the fees. Please prepare an accounting record for the bank fee.
The bank charges a fee to the company, and it must treat the fee as an operating expense. The journal entry is debiting bank fee charge $ 500 and credit cash at the bank $ 500.
| Account | Debit | Credit |
|---|---|---|
| Bank Fees | 500 | |
| Cash at Bank | 500 |
The transaction will record bank fees as the expense on the income statement. The other side will decrease the cash at bank as they already reduce the balance to settle the fees.