Bank Service Charges in a Bank Reconciliation

Quick Answer: In a bank reconciliation, bank service charges are deducted from the book balance, because the bank has already taken them and your ledger has not recorded them yet. The same goes for check-printing fees, wire fees and NSF returns. Interest the bank pays you is added to the book balance. Each of these needs an adjusting journal entry, usually a debit to a Bank Service Charges expense and a credit to Cash.

Bank charges belong on the book side of a reconciliation. The bank deducted the fee when it happened, so the statement already reflects it; your ledger usually learns about it only when you read the statement. You subtract the fee from your book balance on the reconciliation, then post a journal entry so the ledger shows the same reduced cash.

In a bank reconciliation, bank service charges are what?

They are deducted from the balance per books. Ask the same question every reconciling item answers: which side does not know about it yet?

• The bank knows. It charged the fee and printed it on the statement.
• Your books do not. No one entered a $25 maintenance fee in the ledger on the day the bank took it.

So the book balance is too high by the amount of the fee, and the reconciliation subtracts it there. That is the opposite of outstanding checks, which sit on the bank side because the books knew first. If you are working from an accounting textbook, the line is usually labeled "Less: bank service charges" in the book section of the bank reconciliation statement.

Where does each kind of bank charge go?

Most fees follow the service-charge rule, but a few items behave differently. This table covers the ones that show up most often on business statements:

The last row is the exception worth remembering. If the bank charged you a fee it should not have, your books are right and the bank is wrong, so the correction goes on the bank side until the reversal appears on a later statement.

On a bank reconciliation, how is a bank fee for check printing handled?

Exactly like any other bank charge: deducted from the book balance, followed by an entry. The only real decision is which expense account takes the debit.

Banks that supply checks often deduct the cost of a new check order directly from the account, and the line on the statement may read something like CHECK ORDER or CHECK PRINTING. Many small businesses post it to Bank Service Charges to keep all bank-originated costs together. Others post it to Office Supplies, since checks are a supply like printer paper. Either is defensible; pick one and use it every month so year-over-year comparisons mean something.

If the check order is large (a few hundred dollars for a box of business voucher checks) and you want it in Office Supplies, the entry is:

• Dr Office Supplies Expense $64.38
• Cr Cash $64.38

A worked example with every type of charge

Mill Creek Dental reconciles its operating account for August. The statement ends at $31,488.20 and there is one outstanding check for $2,950.00, so the adjusted bank balance is $28,538.20. The ledger shows $29,123.84. The statement carries these items the ledger does not:

• Monthly account fee: $25.00
• Two outgoing wire fees at $15.00 each
• Check-printing charge: $64.38
• Interest earned: $7.91
• A patient's check for $310.00 returned for insufficient funds
• Returned-item fee on that check: $12.00

The book side of the reconciliation:

That does not equal $28,538.20. The difference is $152.17, which means something is still missing. Going back to the statement, the bookkeeper finds a $152.17 card-processing fee the processor debits monthly, a statement line nobody had entered in the ledger. Deducting it brings the adjusted book balance to $28,538.20, and the two sides agree.

This is a good habit to keep: when the fees are posted and the reconciliation is still off, look for the fee nobody thinks of as a bank charge. Merchant processing fees, payroll-service debits and loan autopayments all come off the statement directly.

Which journal entries does Mill Creek post?

One combined entry for the routine fees keeps the ledger tidy:

1. Bank fees: Dr Bank Service Charges $55.00 (the $25.00 account fee plus $30.00 in wire fees), Dr Office Supplies $64.38, Dr Merchant Fees $152.17, Cr Cash $271.55.
2. Interest: Dr Cash $7.91, Cr Interest Income $7.91.
3. Returned check: Dr Accounts Receivable $310.00, Cr Cash $310.00. This reopens the patient's balance so the front desk collects it again.
4. Returned-item fee: Dr Bank Service Charges $12.00, Cr Cash $12.00. If the practice's policy is to pass the fee to the patient, debit Accounts Receivable instead and add it to the patient's bill.

After posting, ledger cash is $29,123.84 + $7.91 − $271.55 − $310.00 − $12.00 = $28,538.20, matching the adjusted bank balance.

Why does the NSF check go back to receivables?

When the patient's check was deposited, the practice recorded Dr Cash, Cr Accounts Receivable, and the patient's balance went to zero. When the bank returns the check, that cash never really arrived. Crediting Cash removes it, and debiting Accounts Receivable puts the debt back on the patient's account where it belongs.

Posting an NSF return to Bank Service Charges instead is a common shortcut and a bad one: it buries a collectible amount in expenses and the patient is never asked to pay. The Consumer Financial Protection Bureau's bank account resources explain overdraft charges on checks, electronic payments and debit cards from the account holder's side, which is worth reading if your own account is the one that came up short.

Spotting fees before reconciliation day

Fees are small, frequent and easy to miss in a long statement. A few ways to catch them early:

• Search the description column for words such as FEE, CHARGE, SVC and SERVICE. Banks are not consistent, so try several.
• Sort by amount. Fees cluster at small round figures ($12, $15, $25, $35), and they jump out when sorted.
• Compare month to month. A fee that appears in August but not July may be a new charge, or one that a minimum-balance waiver no longer covers.

Doing this in a spreadsheet is much quicker than reading a PDF. If your bank does not offer a CSV export, QuickBankConvert turns the statement into rows with a category column alongside the description, so fees can be filtered together; on the Plus plan the same rows can also be downloaded as a QBO file for QuickBooks. The guide to reducing bank fees through statement analysis goes further into which recurring charges can be negotiated away.

Related guides

• Book-to-bank reconciliation
• Bank statement reconciliation guide
• Outstanding checks in a bank reconciliation
• Reducing bank fees with statement analysis