How to account for bank fees?

Properly Accounting for Bank Fees: A Guide for Businesses

Business bank accounts are subject to a range of charges, including ATM fees, wire transfer costs, and insufficient funds penalties. Accurate accounting for these expenses is essential for maintaining financial control and ensuring compliance.

Record-Keeping Best Practices

1. Establish a Separate Ledger: Create a dedicated ledger or spreadsheet specifically for tracking bank fees. This will provide a centralized record of all charges incurred.

2. Categorize Fees: Divide fees into specific categories, such as:

   • ATM fees
   • Wire transfer fees
   • Overdraft fees
   • Returned check fees
   • Account maintenance fees

3. Include All Details: Record each fee transaction, including:

   • Date
   • Amount
   • Type of fee
   • Account number
   • Transaction reference number

4. Attach Supporting Documentation: Whenever possible, attach supporting documentation to each fee entry, such as receipts or bank statements. This provides evidence and supports the accuracy of your records.

Accounting Treatment

1. Expense Account: Typically, bank fees are recorded as expenses. The specific expense account used may vary depending on the nature of the fee. For example, ATM fees might be charged to an “Administrative Expenses” account, while overdraft fees might be charged to a “Bank Charges” account.

2. Balance Sheet Items: Some bank fees, such as account maintenance fees, may be capitalized as assets if they provide a future benefit to the business.

3. Cash Flow Statement: Bank fees will impact the cash flow statement, as they represent a reduction in cash.

Consequences of Improper Accounting

1. Overlooked Expenses: Failing to account for bank fees can lead to overlooked expenses and inaccuracies in financial reporting.

2. Audit Issues: Incorrect accounting for bank fees can raise red flags during audits and result in penalties or fines.

3. Cash Flow Distortion: Improperly accounting for bank fees can distort cash flow statements, making it difficult to assess the financial health of the business.

Conclusion

Accurate accounting for bank fees is crucial for businesses. By establishing proper record-keeping practices, categorizing fees effectively, and applying the correct accounting treatment, businesses can ensure that these expenses are managed efficiently and reported accurately.