What type of expense is bank fees?

Categorizing Bank Fees as Financial Expenses

In the realm of accounting, expenses are classified into various types based on their nature and relation to business operations. One such category is financial expenses, which encompass costs unrelated to the production or delivery of a company’s primary goods or services. Bank fees fall squarely into this category, fulfilling the following criteria:

Distinct from Production Costs:

Bank fees are not directly involved in the production process. They are incurred during the course of normal business operations, such as opening or maintaining accounts, processing transactions, and borrowing money. These costs do not contribute directly to the creation of revenue-generating goods or services.

Incurred During Business Operations:

Bank fees arise as a consequence of ongoing business activities and are not associated with specific projects or investments. They are essential for the smooth functioning of a company and may include charges such as service fees, overdraft fees, and loan origination fees.

Not Part of Cost of Goods Sold or Operating Expenses:

Unlike production costs, which are incorporated into the cost of goods sold, bank fees are not included in the calculation of gross profit or operating expenses. They are reported separately on the income statement as part of financial expenses.

Examples of Bank Fees:

To illustrate, common examples of bank fees include:

• Monthly maintenance fees for checking or savings accounts
• Transaction fees for ATM withdrawals or deposits
• Bank wire transfer fees
• Late payment fees on loans
• Fees for issuing cashier’s checks or money orders

Conclusion:

In summary, bank fees are categorized as financial expenses. They are distinct from production costs, incurred during normal business operations, and not included in the calculation of gross profit or operating expenses. Understanding the proper classification of these costs is crucial for accurate financial reporting and analysis.