What Are Bank Debits?

A bank debit is a bookkeeping term for the realization of the reduction of deposits held by bank customers. A bank debit occurs when a bank customer uses the funds in their account, therefore reducing their account balance.

Bank debits can be the result of check payments, honored drafts, the withdrawal of funds from an account at a bank branch or via ATM, or the use of a debit card for merchant payments. Economists also study bank debit statistics to forecast national economic trends, including the demand for cash.

Key Takeaways

  • A bank debit is a bookkeeping term to record the reduction of deposits in a customer's bank account.
  • Deposits in a bank account can be a result of cash withdrawals, merchant payments via a debit card, check payments, or honored drafts.
  • Economists analyze bank debit statistics to forecast various national economic trends, such as the demand for cash.
  • Bank debits are a liability on a bank's balance sheet, as they are obligations owed to a customer, whereas they are assets to the customer.
  • A bank debit can only occur with the permission of the account holder.

Understanding Bank Debits

Anytime money is moved out of a customer's account it is recorded as a bank debit. Bank debits can also include any overdraft fees, annual account fees, or other fees associated with the management and upkeep of the bank account. Bank debits are only permitted by the account holder and any fees are legally allowed when a customer legally signs the account opening documents.

On a bank's balance sheet, deposits are liabilities; they represent a source of capital and obligations to the customer and are an asset to the customer. When a bank debit occurs and funds are withdrawn, the bank's liabilities are reduced, and the bank's liabilities are debited.

When a check is paid, the bank's obligation to the customer becomes smaller, since fewer funds are supplied to the bank. The liability that deposits represent is reduced through a debit for the amount of the check.

Example of Bank Debits

If you live in an apartment and pay a monthly rent and it is now May 31 and June's rent is due tomorrow, you write out a check for your monthly rent amount to be paid to your landlord. When the landlord deposits the check and the funds are withdrawn from your bank account, a bank debit will be marked on your account statement.

Another example would be if you have no cash on hand and decide to make a trip to the ATM around the corner. You take out your debit card and use it to withdraw $200 from the ATM, a bank debit of $200 will be recorded on your bank account statement. Taken a step further, if you only had $175 in the account you will be charged an overdraft fee of $25, which will be a bank debit once you increase funds in your bank account.