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What does debit memo mean on a bank statement?

Author:
Harold Averkamp, CPA, MBA

Definition of Bank Debit Memo

A debit memo on a company’s bank statement refers to a deduction by the bank from the company’s bank account. In other words, a bank debit memo reduces the bank account balance similar to a check drawn on the bank account.

Examples of a Bank Debit Memo

Some examples of a bank debit memo include the following withdrawals from a company’s checking account:

  • The company’s monthly loan payment
  • The fee for printing the company’s checks
  • The fee for handling a check that the company deposited and the check was returned because of insufficient funds
  • A transfer of funds to another account at the bank

The bank’s use of the term debit memo is logical because the company’s bank account is a liability in the bank’s general ledger. (The bank accepted the company’s cash which is recorded by a debit to the bank’s Cash account, and the bank credits its liability account Customer Deposit Accounts. The liability is appropriate since the bank has the obligation to return the customer’s money on demand). The bank’s liability is reduced when the bank charges the company’s account for a bank fee. Hence, the credit balance in the bank’s liability account is reduced by a debit.

In the company’s general ledger, the bank debit memo will reduce the company’s checking account (which is an asset) and will require the company to credit its Cash account (and debit another account such as Bank Fees Expense).

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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