Don’t understand the record of banks debit and credit? Learn Now!
If you want to know your bank accounts position, the bank will provide you a statement. If you have no knowledge about debit and credit or basic bookkeeping than you are not able to figure it out what happens in your account’s transactions? Then you go to a banker and asked him about your deposits. Bankers said your amount is debited but you have no knowledge about debit accounting and you say what is debit? Or if you withdraw money from your accounts then banker said your amount is credited but you have no knowledge about what is credit?
If you are newbie learned about debit and credit in bookkeeping. It might seem to be puzzled. You know bank accounts debited means the general ledger of accounting is increasing in balance. But the bank says it is crediting, increasing the general ledger balance. On the other hand, you learned cash amount is crediting the general ledger is decreasing but the bank says it is debiting and increasing amounts in general ledger.
How does it works?
You are totally confused in those types of treatment what is bank recorded in his book. We may explain banks debits and credits as per accounting principles which you have learned before in accounting. The explanations with examples are given below;
Let’s start with the effects of the transaction. In your company and the bank, the book is reconciled. Your company, Alex Corp. receives $500 of currency from a client as an advanced for a future service. When the transaction has completed and money is received the following effects on your accounts;
(Alex Corp. Journal entry)
Cash Dr. $500
Unearned Revenue Cr. $500
Above the journal entry, Alex Corp. received the cash and increases its cash accounts with debit $500. As per double entry system, this transaction has required credit amount of $500 and it goes to general ledger accounts. In the general ledger accounts revenue is not credited because the revenue has not earned yet. The credit accounts name is unearned revenue which is liability accounts intend of revenue accounts. Alex Corp. records this amount as revenue accounts when the job was done.
In the bank’s point of view, when you deposited your cash amount in your bank account $500. The bank records that transaction as debits in his general ledger accounts and so that bank assets increase. In the double entry, the bank has recorded credit accounts also in general ledger accounts $500. The reason is why the bank has not earned yet $500 and also bank cannot credit the revenue account. Because of the bank has an obligation to pay this money to accounts holder. So that reasons, bank credited his liabilities account.
(Alex Corp. Journal entry)
Cash Dr. $ 500
Deposits (In Statements) Cr. $500
In the journal entry shows that banks assets increase by cash $ 500 and increase in liability by deposited credit amount $500.
Now if we are looked another transaction where the bank is received from a transfer cheque on behalf of you which amount $300. There have two transactions occurs in bank book one is bank received $500 and other is obligation created to give the money to Alex Corp. here the two transactions are given below;
(Bank’s journal entry)
Cash Dr. $ 300
Deposit (In Statement) Cr. $ 300
In a journal entry, cash increasing assets in the balance sheet in banks accounts and credit are increasing banks liability by the deposit of amount.
On the other hand, $300 has received by the bank. Alex Corp. records his followings journal entries. Into the ledger accounts
(Alex Corp. journal entry)
Cash Dr. $300
Accounts receivable Cr. $300
In the above transaction to collect amount $300 from a client, Alex Crop’s increasing assets by cash debited and other aspects assets decreased by credited Accounts Receivable.
Now and then most of the bank revised their monthly fee on accounts holder. If the bank does that and changes their service charge by $ 20 then bank decreases Alex Corp. accounts balance for the monthly bank charge, and it will show to Alex Corp. bank statement as a “Debit Memo.” On the other hand, bank decreases his liabilities and it also shows that his revenue increased by the servicing the accounts holders.
(Bank’s general ledger)
Deposit (In Statement) Dr. $ 20
Bank service revenue Cr. $ 20
The entry will look like when it will record in Alex Corp.
(Alex Corp. general ledger)
Bank service Charge Dr. $ 20
Cash Cr. $ 20
When the cash is credited by the amount $ 20 the company’s Assets will be decreased and when the bank charges debited by $ 20 expenses will increase.