Definition Of Debits In Bank Accounts

2019/02/25

A bank account can be used for performing various transactions. An individual can deposit and withdraw money from his/her bank account.  Bank account can also be used to make payments to third parties.

A bank offers different facilities like check and ATM card to its account holders which can be used to conduct various account related transactions.

Effect of Deposit and Withdrawal on Bank Balance

Whenever a deposit is made in a bank account, account balance increases by the amount of such deposit. Similarly whenever a withdrawal is made from the bank account, account balance decreases. For Instance, opening bank balance in an individual’s account is $ 10,000. He has made a deposit of $ 4,000 and a withdrawal of $ 5,500 in the month of June 2011. At the end of the month, his account balance would stand at $ 8,500.

In case a payment has been made in favor of a third party, such a payment would have the same effect as in the case of a withdrawal. For Instance, in the above example, if account holder has made a payment of $ 2,000 in the month of July 2011 in favor of his landlord towards monthly rent, his account balance at the end of the month of July would reduce from $ 8,500 to $ 6,500.

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Debit Transaction in a Bank Account

Any kind of Withdrawal or Payment or Transfer of funds from the bank account would represent a debit transaction. Any debit transaction has the effect of reducing the account balance. For Instance, a company may pay salaries to its employees through a bank account. Company’s bank balance will be debited by an amount equivalent to the salaries released. Debit in bank accounts generally indicates a negative entry while a credit in bank accounts indicates a positive entry.

While going through a bank statement, it is important to check the debit transactions in order to ensure that correct amount is paid or transferred to the correct payee. Further any kind of bank charges levied by the bank would represent a debit transaction only. For Instance, an individual’s account balance is $ 1000. He makes an online transfer of $ 100 to his sister’s bank account. If bank charges an amount of $ 1 for an online transfer to another account, this individual’s account balance would reduce to $ 899.

ATM card provided by banks is also known as debit card as it reduces the account balance by the amount withdrawn or paid.

Following are some Examples of Debit Transactions in a Bank Account.

a)    Payment made to a government authority on account of any tax.
b)    Payment for utility bills like telephone or electricity bill.
c)    Payment made online for purchase of a laptop.
d)    Direct debits in respect of recurring transactions.
e)    Payments made in cash after withdrawing money from the bank.
f)    Any stop payment or check book charges levied by the bank.
g)    Any check drawn in favor of a service provider.
h)    Any money withdrawn from an ATM machine to meet daily expenditure.
i)    Any kind of reversal of a wrong credit in the bank account.
j)    Payment made via debit card towards purchase of a mobile phone from a retail shop.

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