Every body knows the importance of the banking services in today’s time. No one can survive without the help of banks in respect of financial transactions. In financial life, on each and every step, the services of banks are required. The banks provide the services to their customer and in exchange of their services the banks get some money from their customers. These service charges are called as bank charges. The following expenses in respect of bank dealing, come under the head ‘Bank Charges’:-

  1. Normal service charges for maintenance of the accounts of the customers.
  2. Commission for issuing the bank draft or pay order or money transfers by banks.
  3. Service charges or penalty in respect of dishonor of cheques.
  4. Loan processing charges.
  5. Cost of cheque books or pass books or statement of accounts.
  6. Issuing of certain certificates as required by the business firm in normal course of business or for special purposes.
  7. Any other routine or special expenses in respect of bank transactions, as not mentioned above.
  8. Locker rent etc.

Bank charges are also called as bank commission expenses.

Accounting treatment of Bank Charges Expenses:- All expenses relating to bank dealing except interest on loan, should be booked under Bank Charges or Bank Commission account. The entries of bank charges shall be made as under:-

a) In case of Bank Charges paid in cash

Type of Voucher to be prepared: Cash Payment Voucher

Entry to be made:-

Debit : Bank Charges Account

Credit: Cash Account

 b) In case of Bank Charges paid by cheque or directly debited by bank in our account:-

Type of Voucher to be prepared:- Bank Payment Voucher

Entry to be made:-

Debit : Bank Charges Account

Credit:   Bank Account

c) Some time the bank charges are being charged by the parties other than banks also. It can happen in the following cases:-

  • Any cheque issued by us but dishonored.
  • Any cheque issued by us and any charges paid by third party for getting cleared the same. It happens in case of out of station cheques.
  • Any bank charges paid by the other party for getting the demand draft or pay order made on the request of the customer.
  • Any other charges paid to bank in respect of the business firm.

In above cases the following entries shall be made:-

Type of Voucher to be prepared:- Journal Voucher

Entry to be made:-

Debit : Bank Charges Account

Credit:  Customer or Supplier’s Account

Treatment of Bank Charges in Final Accounts

Since the bank charges come under the category of indirect expenses, therefore, these expenses should be shown in expenses column of profit and loss account.

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