Bank service charge expense
/What is a Bank Service Charge?
A bank service charge is a fee charged by a bank to a customer for any number of banking services, including the following:
ATM usage fee. This is a fee charged by the owner of an ATM that is not within the network of the bank in which the person’s bank account is maintained.
Basic account maintenance fee. This is usually a standard amount that is charged each month for the specific type of account that the customer has agreed to maintain at the bank.
Overdraft fee. This is a fee charged when an account holder writes checks for a greater amount than the current balance in his or her account. The bank charges a fee to allow these checks to clear.
Transaction processing fee. The bank may charge additional fees for the number of checks deposited and/or the number of checks written on an account.
Wire transfer fee. The bank charges a wire transfer fee whenever the account holder initiates a wire transfer of funds to a third party.
What is Bank Service Charge Expense?
Bank service charge expense is the name of an account in which is stored all fees charged to an organization's checking accounts by its bank. This separate account is more likely to be used when a business maintains a large number of checking accounts, and wants to analyze the costs of maintaining them. When there are fewer checking accounts or the fees are quite low, service charges are more likely to be recorded in a miscellaneous expenses account.
Bank Service Charge Example
Lotus Manufacturing maintains a business checking account with a local bank to manage its daily transactions, such as paying suppliers, receiving payments from customers, and handling payroll. At the end of the month, Lotus’ accountant notices the following service charges on its bank statement:
Monthly maintenance fee. The bank charges a flat monthly fee of $25 to maintain the business checking account. This fee applies regardless of the number of transactions unless the company maintains a minimum balance of $5,000, which Lotus did not meet this month.
Transaction fees. Lotus made 60 transactions this month, including deposits, withdrawals, and transfers. The bank allows up to 50 free transactions per month; any additional transaction incurs a $0.50 fee. With 10 transactions over the limit, the additional charge is $5. The total transaction fee is therefore $15.
Wire transfer fee. Lotus sent an international wire transfer to a supplier, for which the bank charged a $20 fee. International transfers typically incur higher fees than domestic ones due to additional processing costs.
Cash deposit fee. The business deposited $12,000 in cash during the month. The bank allows up to $10,000 in cash deposits for free each month, after which it charges $0.20 per $100 deposited. Since Lotus deposited $2,000 over the limit, the fee amounted to $4. The total cash deposit fee is $10.
Overdraft protection fee. Lotus’s account temporarily went below zero due to an unexpected automatic payment. The bank covered the shortfall through overdraft protection but charged a $12 fee for the service.
Total Bank Service Charges Expense: $82
These charges illustrate how various bank services, from account maintenance to handling specific transactions, can add to a business’s banking costs. Understanding these fees can help businesses manage their finances more effectively and seek alternatives if charges become excessive.