What is a wire transfer?

Definition

A wire transfer is a same-day bank-to-bank payment sent as a one-off instruction, not through the ACH batch network. On the books of the party that receives it against an open sale, cash goes up and accounts receivable goes down.

The sending bank moves the funds as a single item, usually the same banking day. That speed is why shops use a wire for a large or urgent order.

Where it shows up

Balance Sheet: Located in the current assets section, as cash up and the receivable down.

Cash flow: Related to the collection hitting operating cash.

P&L: Related to nothing extra unless a wire fee is recorded.

See also: ACH Payment · Accounts Payable · Bank Statement

When a customer wire lands, cash in current assets is higher and the receivable is lower. Net assets do not change if you only applied a collection.

On the Statement of Cash Flows, the collection is operating cash in. The original revenue already hit the Income Statement when you earned the sale.

The P&L stays still unless a wire fee posts. Record that fee as its own expense, not as a cut of the $5,000.

On the bank feed the line often reads WIRE CREDIT with the sender's name. Match that line to the open invoice the cafe meant to cover.

If you are the payer, the same rail reduces cash and accounts payable. This page's example stays on the receipt so the journal matches the collection.

How it works

The sender gives the bank the receiver's routing number, account number, and amount. The bank sends that instruction as a single item instead of holding it for a nightly batch.

The receiving bank credits the merchant the same banking day in most cases. That credit is the cash event you book against the open receivable.

The sending bank debits the payer right away. From the cafe's seat, cash falls as soon as the wire leaves.

Wires usually cost more than ACH. The fee may hit the sender, the receiver, or both, and you book only the fee that actually posts on your statement.

Stay on this rail. ACH is a cheaper batch network that posts on a cycle, and a card settlement is a processor depositing net card sales.

A wire is also used to pay a vendor when the amount is large or the deadline is today. That use shares the same bank instruction and does not change the customer-receipt journal on this page.

Support is the wire confirmation plus the invoice the cafe named. If the confirmation has no invoice number, you still have cash in, and you still need to match it later.

Cutoff times matter. A wire started after the bank's cutoff often moves the next banking day, so do not treat same-day as a promise after the afternoon cutoff.

Example

A florist has an open $5,000 invoice for a large flower order. The cafe wires $5,000 the same afternoon so the order can go out.

The florist records the receipt this way:

Debit: Cash $5,000

Credit: Accounts receivable $5,000

Cash is $5,000 higher. The cafe's receivable is gone.

The Income Statement does not move. The sale was already earned when the order was billed.

If the florist's bank takes a $15 incoming wire fee, debit that fee to expense and credit cash $15. Do not net it against the $5,000 receipt.

Common mix-ups

A wire transfer is not an ACH payment. ACH is a batch rail that posts on a cycle, while a wire is a one-off instruction that usually lands the same day and costs more.

A wire transfer is not a card settlement. Card money arrives through a processor after fees, while a wire moves bank to bank as a single credit.

A wire transfer is not the approval of the bill. Approving a vendor bill decides that it may be paid, and the wire is the later cash movement.

Related terms

• ACH Payment: An electronic bank-to-bank transfer used for routine payments.
• Bank Fees: Charges the bank deducts for account services and transactions.
• Accounts Payable: Amounts the business owes vendors for goods or services already received.
• Operating Bank Account: The main checking account through which day-to-day receipts and payments flow.
• Bank Statement: The bank's period record of every transaction and the ending balance.
• Check Run: The scheduled batch in which approved vendor bills are paid.
• Approval Workflow: The routing of a request or bill through the people who must sign off.
• Cash Position: The amount of cash on hand at a given moment across all accounts.