Understanding the Journal Entry for Cash Deposit in Bank: A Comprehensive Guide with Examples
One of the most common transactions in businesses is depositing cash in a bank, and the correct recording of this process is central to a businesses financial reporting, and analysis.
For example, a restaurant might receive payment from customers in both cash and card, so at some point, the cash held at the restaurant will need to be deposited in a bank to keep it secure.
Once the cash has been deposited into the bank, a journal entry will need to be posted, to reflect the transaction in the business’s accounts.
This is a fundamental aspect of bookkeeping and accounting, and understanding the debits and credits is a vital concept to grasp for all accounting professionals.
Accounts Involved in the Journal Entry for Cash Deposit in Bank
When a business deposits cash in a bank, there are three accounts involved:
- the cash account
- the bank account
- the bank service charges account (where applicable)
Cash Account | Credit | Asset | Credits decrease the asset value |
Bank Account | Debit | Asset | Debits increase the asset value |
Bank Service Charge Account | Debit | Expense | Debits increase the expense |
Using the DEAD CLIC mnemonic to understand the debits and credits:
The Cash account in an asset, as it contains economic value and/or future benefit
The Bank account is an asset, as again, it contains economic value and/or future benefit
The Bank Service Charge account is an expense, as it an outflow of money or assets to another individual or company as payment for an item or service
Example of Journal Entry for Cash Deposit in Bank
Let’s take a look at two examples of journal entries for cash deposits in banks. One will be a cash deposit without any bank services charges, and the other will be a cash deposits with a bank service charge:
Example 1: Recording a Cash Deposit in Bank with no Bank Service Charges
A business deposits £5,000 cash in a bank account. The journal entry to record this would be:
Cash Account | Credit | £5,000 |
Bank Account | Debit | £5,000 |
The cash has been handed over to the bank, so we don’t have that cash anymore, therefore we would reduce the cash account asset by crediting that account.
The cash is now sat in the bank account – in other words, our bank account has increased. As the bank account is an asset, we would increase this by debiting that account.
Example 2: Recording a Cash Deposit in Bank with Bank Service Charges
A business deposits £5,000 cash in a bank account, and the bank charges a service fee of £50 to do this.
The journal entry to record this would be:
Cash Account | Credit | £5,000 |
Bank Account | Debit | £4,950 |
Bank Service Charge Account | Debit | £50 |
The cash has been handed over to the bank. As the business doesn’t physically hold that cash anymore, we would need to reduce the cash account asset by crediting that account.
The cash is now sat in the bank account – in other words, our bank account has increased. As the bank account is an asset, we would increase this by debiting that account.
However, we have also been charged £50 by the bank. As this is an expense, we would need to increase the Bank Service Charge Account by debiting it.
Consequently, that £50 charge will come out of the cash we deposited, which is now in the bank account, so we need to reduce our bank account value by £50 and to do that, we would credit the bank account to reduce the asset.
Example 3: Recording a Cash Deposit in Bank with Bank Service Charges (alternative postings)
If you wanted to post the service charge transaction completely separately to keep the transaction process flow clean, the journal entry could also look like this:
Cash Account | Credit | £5,000 |
Bank Account | Debit | £5,000 |
Bank Service Charge Account | Debit | £50 |
Bank Account | Credit | £50 |
Understanding the journal entry for cash deposit in a bank is crucial for keeping track of all financial transactions.