The bank takes its fee without asking and reports it on the statement. Until the entity reads the statement, its ledger overstates cash.
That makes the service charge a book-side item, subtracted, with an entry debiting an expense account and crediting cash. It is the mirror image of a deposit in transit: there the entity knew first, here the bank did.
Interest the bank credits works the same way in the other direction. The entity did not know about it either, so it is a book-side addition with an entry debiting cash and crediting interest revenue.
For example, a $50 fee shown only on the statement reduces the book balance by $50. Debit the supported bank-fee expense and credit Cash. If the entity had already recorded the charge, do not record it again; instead, match the ledger entry to the statement item. An unknown charge is an exception to investigate, not an amount to force into expense merely to make the columns agree.
Put the concept to work
Understand this concept
- Explain why a bank service charge appears on the book side of a reconciliation and requires an entry, unlike a deposit in transit.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Bank reconciliation — Understand
To understand this concept: Required. The item is defined by its place on the reconciliation.
- Expense — Understand
To understand this concept: Required. The charge is an expense of the period the bank levied it in.