What is a Bank Charge?

A bank charge is a fee assessed to an account by a financial institution. A bank charge may be levied for a number of reasons, including the following:

Not maintaining a minimum balance
Issuing a not sufficient funds check
Depositing a check that bounces
Exceeding the overdraft limit on an account
The passage of time, if there is a monthly service fee
The ordering of additional bank checks
Foreign transaction fees
The issuance of a paper bank statement, rather than an on-line one
The manual handling of transactions by a bank teller
Inactivity in an account

Bank charges can be a major source of income for a financial institution.

Accounting for Bank Charges

A business that incurs bank charges will usually record them as expenses as part of its monthly bank reconciliation process. These expenses are typically classified as administrative expenses, and so will be included in the general and administration section of the reporting entity’s income statement. These expenses are not classified as cost of goods sold expenses, since they are not related to the sale of goods or services.