What are bank fees?
Charges the bank deducts for account services and transactions. A coffee cart sees them come out of the checking account on the monthly statement.
Definition
Bank fees are the charges a bank takes for keeping an account and moving money. On the books, this is an Income Statement cost, not a reduction of a loan and not the coffee the cart sold.
A coffee cart records monthly account charges, wire costs, and overdraft fees on this line. The bank already deducted them from the checking balance.
Accrual books still record the month the bank charged, even if you notice the line only when you match the books to the bank. Cash-basis books see the same moment, because the fee already left the account.
This cost is the period's bank charges. It is not the card processor's cut on a sale, and it is not the cash that remains after the fee.
Where it shows up
P&L: Located in operating expenses.
Balance Sheet: Related to cash leaving the operating account.
Cash flow: Decreases when the bank takes the fee, reported cash from operating activities decreases.
See also: Operating Expenses · Bank Statement · Bank Reconciliation
When you look at your Income Statement, this cost sits in the keep-the-doors-open block. Cup sales sit above it as revenue.
When the figure is high, the cart sent more wires, bounced an item, or the bank raised its monthly charge. When it is low, fewer special transactions hit the account.
The Balance Sheet does not keep this period's fee after the close. The fee already reduced cash in the operating bank account.
On the Statement of Cash Flows, the deduction is the cash event. Cash from operating activities falls when the bank takes the fee.
Operating expenses are the ongoing costs of running the cart that are not the coffee and milk that sold. This bank charge is one of those keep-the-doors-open lines.
A monthly account fee is usually small and steady. A wire or an overdraft can make a single month jump.
How it works
The bank deducts a fee from the checking account. The cart's cash is already lower, even before anyone opens the books.
The books then debit this cost and credit cash for the same amount. That entry matches the deduction so the ledger cash agrees with the bank.
If you skip the entry, the books will show more cash than the bank. The missing piece is this cost, not a sale you forgot.
Stay with the bank's own charges when you read the line. A processor fee on a card sale is a different cost, even though both reduce cash.
A wire the cart sent to a roaster can carry a bank charge. The wire moves cash to the vendor; this line is only the bank's fee on that send.
Do not treat the fee as a reduction of revenue. Cup sales stay whole; this cost sits below them with the other keep-the-doors-open items.
Selling, general, and administrative expenses often hold this line in a grouped overhead view. The meaning does not change: it is still the period's bank charges.
After the month closes, this line is part of the period's profit story. Next month starts the count again from zero.
Example
Harbor Cart Coffee sees $85 of account charges on this month's bank activity. The bank already took the money from the checking account.
The cart records:
Debit: Bank fees $85
Credit: Cash $85
This cost hits the Income Statement, and cash (an asset) falls by $85. The bank already moved the money.
Cup revenue this month is $6,400. After the $85 bank charge, $6,315 is left to cover beans, wages, and everything else.
If the $85 includes a $25 wire fee and a $60 monthly account charge, both pieces still sit on this line. They are the bank's charges, not the roaster invoice.
A later review that finds last month's missed $15 overdraft fee is still this cost in last month, if the books are still open. If the month is closed, it is a correction, not a new sale.
Common mix-ups
Bank fees are not the same as merchant processing fees. Bank fees are the bank's charges on the account; processor fees are the cut for taking cards.
Bank fees are not the same as the bank balance. The balance is what is left; this line is the charge that reduced it.
Bank fees are not the same as interest on a loan. Interest is the cost of borrowed money; this line is the cost of using the account.
Related terms
- Operating Expenses: The ongoing costs of running the business that are not direct costs of sale.
- Bank Statement: The bank's period record of every transaction and the ending balance.
- Bank Reconciliation: Matching the book cash balance to the bank statement and explaining every difference.
- Merchant Processing Fees: The percentage and per-transaction fees charged to accept card payments.
- Operating Bank Account: The main checking account through which day-to-day receipts and payments flow.
- Journal Entry: A dated record of debits and credits posted to the ledger.
- Selling General And Administrative Expenses: The grouped overhead costs of selling, administration, and management.
- Wire Transfer: A same-day bank transfer, usually for large or urgent payments.