Cash Deposit in Bank JE is a seldom-used journal entry.
Physical cash usage is decreasing.
That’s due to the use of digital money.
Thus, cash deposits are rare.
Thanks to the digital era!
There are a lot of tech advancements.
Cash Deposit machines are one such improvement.
The majority of the deposits happen through cash deposit machines.
These deposits are infrequent among business entities.
However, let’s learn journal entries to understand the accounting part.
Table of contents
Cash Deposit into Bank Journal entry:
Before the existence and expansion of the banking system, Business trade used to happen through physical cash. It was just one method of payment in those days, but cash transactions comprised a significant percentage of trade value.
Now, the percentage of cash transactions is negligible.
That doesn’t mean there is an elimination of cash transactions.
So, there will be instances of deposit transactions due to business needs.
We will first learn how the journal entry looks. Said differently, we will see which accounts are part of the debit and credit side of the entry to record this transaction.
Runners Insight:
A business has Loads of banking transactions happening every day, so companies are not limiting their bank accounts to one. Therefore, when recording a bank transaction in books, we need to clarify the details of the Bank to which it relates. The Bank GL Description shall be apparent. For example, adding the GL description as ABC Bank instead of just mentioning it as Bank will be more appropriate. Thus, such a clear description helps identify a particular transaction in the bank account.
How is the Cash Deposit into Bank Journal entry recorded?
The transaction comprises Cash and Bank GL, which are both assets. Per the Modern Rules of Accounting, we need to debit an asset to increase it and credit it to decrease it. So, here, the Bank balance improves, and physical cash decreases.
We also have the golden accounting rules, which form the basis for recording any journal entry. The result will be the same regardless of the accounting rules followed.
Recommended Article: Fictitious Assets (also called Fake Assets)
There are three categories of GL accounts as per the Golden Rules: Personal, Real, and Nominal Accounts.
Refer to the table below for
- Understanding the nature of these accounts and
- Summary of rules applicable to all these accounts.
All assets fall into the real account. So, we need to debit what comes in and credit what goes out. Cash going out will be credited, and the Bank balance coming in will be debited.
Frequently Asked Questions:
Is cash deposited in a bank a Debit or a Credit?
Cash deposited in the Bank will be credited if the bank goes out of business. We need to credit those in the Journal entry to decrease a GL account with a debit balance.
Deposited into a bank journal entry
Deposited into bank journal entry accounts for the cash deposits into the bank account. So, we will debit the bank account and credit the cash account. However, if a Check/Cheque is deposited into the bank account, we must identify the other GL Account involved in this transaction. In most cases, the other GL will be receivables or sundry debtors. All the receipts in the Cheque/Check will be deposited into the bank for clearance. The entry for such a deposit of a Cheque/Check will be
What is a contra journal entry?
A Contra journal entry is a transaction between bank accounts or cash and the Bank. The net effect will not change the balance at the GL level of the financial statement. That’s because Cash and bank Accounts are part of the Cash and Cash equivalent group.
In other words, a contra entry is similar to moving money from one pocket to another.
For example, there is a transfer from one bank account. This results in balanced movement within the cash and cash equivalents financial statement line item. There is no increase or decrease in bank balance at the financial statement line item level. A Contra journal entry is a transaction between bank accounts or cash and the Bank. The net effect will not change the balance at a higher-level GL.
Also Read: True Up Journal Entry
Is a bank-to-bank transfer a contra entry?
Yes, bank-to-bank transfer is a contra entry. The bank accounts grouping falls under the financial statement line item “Cash and Bank or Cash and Cash Equivalents.” So, there is no change in the Cash and Bank GL balance.
How is the cash deposit entry recorded in the tally?
A cash deposit is a contra entry. So, this can be recorded by choosing ‘Accounting vouchers’ and then Contra (F4). Later, we can select the Ledgers and pass the entry.
Also Read: Cash Coverage Ratio
Deposited cash into the bank journal entry
The entry results in a debit to the bank account and a credit to the cash. We will learn about the money deposited in the bank journal entries with an example. Suresh deposited excess cash in hand of $.10,000 in the Bank so that he could earn interest on such deposit. The interest received for the year is $400. The entry for deposit and interest will be as follows.
Deposit entry
Interest receipt at the end of the year
Bank interest is payable in the account itself. So, an increase in bank balance will result in a debit to the bank account. The receipt is an income and falls into the category of a nominal account. Per Nominal accounting rules, we will debit all expenses and losses and credit all incomes and gains. So, we will credit the interest income.
Conclusion
A cash deposit into a bank journal entry is a contra entry, and it’s a contra account because this transaction does not affect business operations. There is a change in the medium of the cash balances from being in physical to electronic mode (bank).
There is no additional inflow or outflow of asset balances. After all, the net effect is zero. We can record the transaction by debiting the bank account and crediting the cash account.
