How to record bank fees

Fees reach a small business from several directions, and each one is charged to a particular account:

• account-keeping fees on the business bank account
• transaction fees, a per-transaction cost business.gov.au says banks may charge
• merchant service fees for taking card payments, which business.gov.au says are common with EFTPOS and card providers
• annual and late payment fees on a business credit card
• set-up costs and ongoing fees on loans, which business.gov.au lists among the costs that vary between loans
• fees for handling cheques, which business.gov.au mentions as one of the downsides of being paid by cheque
• dishonour fees when a payment you collect or make fails.

Because most fees are taken without an invoice, the statement line is usually the source document. business.gov.au points out that internet banking shows all your transactions, which makes fees easy to spot between statements as well.

A fee charged to a bank account reduces cash, while a fee added to a card or loan account increases the debt. The usual entry for an ongoing fee is a debit to a bank fees expense account and a credit to the bank, card or loan account that was charged.

Statement descriptions can be terse. The ATO says a record should show enough about a transaction for its purpose to be understood, so add a short note when a line doesn't make clear what the fee was for. Some businesses keep merchant fees in an account of their own, so the cost of taking card payments is easy to see on the profit and loss statement.

The credit side follows the account that carried each fee. A fee charged to the loan increases what the business owes the lender, so it is credited to the loan account, not to the bank.

Some payment providers pay your card takings into the bank with their fee already taken out. business.gov.au describes buy now, pay later providers working this way: the provider pays the business the full amount at the time of purchase, less a fee.

Recording the net deposit as the sale would understate sales and hide the fee. The usual approach records the sale at its full amount, then splits the deposit into the money received and the fee.

The clearing account was debited when the card sales were recorded, so this entry clears it and leaves the fee showing as a cost.

business.gov.au's glossary describes interest as the cost of borrowing money, or the money earned on an account that pays interest. Both are different from fees, which are charges for a service.

• Interest charged on an overdraft, a loan or the credit card: debit an interest expense account and credit the account it was charged to.
• Interest earned on an interest-bearing business account: debit the bank and credit an interest income account.

Keeping the two apart puts interest on its own line, so it is easy to see when you review your costs.

Ongoing loan fees, such as a monthly service fee, are recorded each time they are charged. A one-off cost at the start of a loan, such as an establishment fee, is less straightforward. Record it from the loan documents; how it is treated in your accounts is a question for your accountant.

• A fee the bank later refunds: record the refund as a reversal of the fee, with a debit to the account the money came back to and a credit to bank fees, rather than as new income.
• A fee you think is wrong: it has still been charged, so record it as it appears, raise it with the bank and keep a note of the query. If the bank refunds it, record the refund when it arrives.
• A dishonoured customer payment: the dishonour fee is a bank fee, but the failed payment itself is a separate matter. The customer's payment didn't come through, so the amount goes back to what that customer owes.

Where a single account serves both personal and business banking, business.gov.au says the personal payments and expenses in it need to be marked clearly in the cash book. Some of that account's fees may then belong to private use, and the ATO expects clear documents showing the business share of any expense with private use mixed in. A separate business account avoids the question.

Fees often come to light during a reconciliation, because the statement is usually the only place they appear. Record them as you reconcile each bank, card and loan account, and keep the statements. Bank records are among the records business.gov.au says to keep, generally for 5 years.