What Is a Bank Deposit in Accounting?

Bank deposits are money that companies and private individuals deposit into bank accounts for safekeeping, savings or investment. In the accounts , bank deposits are classified as current assets and form an important part of the company’s working capital .

Read more about Bedriftsbank for a complete overview of the company’s banking services.

See also What is a Company Account? for an introduction to your company’s primary bank accounts.

What are bank deposits?

Bank deposits represent liquid funds placed in financial institutions. These funds are available to the company and can be used for:

• Daily operating expenses and current liabilities
• Short-term investments with low risk
• Liquidity reserves for unforeseen expenses
• Interest accrual on surplus liquidity

Characteristics of bank deposits

Bank deposits have several important characteristics that affect accounting:

• High liquidity: Easily available for withdrawal
• Low risk: Protected by the deposit guarantee
• Interest accrual: Provides returns over time
• Currency exposure: Can be in different currencies

Types of bank deposits

There are several types of bank deposits with different characteristics and accounting treatment.

Current account (Operating account)

Current account is the most common type of account for businesses and is used for day-to-day transactions.

Properties of current account:

• Free access to the funds
• Low or no interest
• Unlimited number of transactions
• Possibility of overdraft (overdraft)

Accounting of current account:

Debet: Bank (1900)           100.000
Kredit: Kundefordringer (1500)      100.000

Savings account

Savings account is used to place surplus liquidity with a higher interest rate than a current account.

Features of Savings account:

• Higher interest than current account
• Limited access to the funds
• Notice period may be required
• Stable placement of funds

Time deposits (Fixed Deposits)

Time deposits are deposits with a fixed term and an agreed interest rate.

Characteristics:

• Fixed term (1 month to several years)
• Agreed interest on deposits
• No access before maturity
• Higher interest rate than a savings account

Currency account

Currency account contains deposits in foreign currency.

Special considerations:

• Currency risk in case of exchange rate changes
• Conversion to functional currency (GBP) in the accounts
• Exchange gains/losses when rates move
• Hedging strategies can be used

Accounting of bank deposits

Basic Accounting

Bank deposits are accounted for in the balance sheet as current assets.

Chart of accounts for Bank deposits:

Deposit of Cash

When cash is deposited into a bank account:

Debet: Bank (1900)           50.000
Kredit: Kasse (1800)                50.000

Transfer Between Accounts

When transferring from a current account to a savings account:

Debet: Sparekonto (1902)     200.000
Kredit: Brukskonto (1901)           200.000

Interest management

Accounting of Interest

Interest income from bank deposits is accounted for as financial income.

Accrued Interest (Periodization):

Debet: Påløpte renteinntekter (1590)  5.000
Kredit: Renteinntekter (8050)               5.000

Interest received:

Debet: Bank (1900)                    5.000
Kredit: Påløpte renteinntekter (1590)       5.000

Interest calculation

Simple Interest Formula:

Renteinntekt = Hovedstol × Rentesats × Tid

Example of interest calculation:

• Principal: GBP 1,000,000
• Interest rate: 3% per year
• Time: 6 months
• Interest income: 1,000,000 × 0.03 × 0.5 = GBP 15,000

Compound interest

For installments with [compound interest](/regnskap/finansiering-og-investering/renters-rente/ “Renters rente " Rente på rente i regnskap”):

Currency deposits

Conversion to Functional Currency (GBP)

Foreign currency deposits must be converted to GBP in the accounts.

Conversion rates:

• Daily rates: For current transactions
• Balance date rate: For balance sheet preparation
• Average rate: For income statement recognition

Exchange rate gain and Exchange rate loss

In the event of an exchange gain:

Debet: Valutakonto USD (1910)        10.000
Kredit: Kursgevinst (8150)                  10.000

In case of an exchange loss:

Debet: Kurstap (7150)                5.000
Kredit: Valutakonto USD (1910)             5.000

Bank reconciliation and control

Monthly Bank Reconciliation

Bank reconciliation is critical to ensure correct bank deposits in the accounts.

Reconciliation process:

1. Compare bank statement with ledger
2. Identify differences and discrepancies
3. Investigate reasons for deviations
4. Correct errors in the accounts
5. Document the reconciliation

Regular Reconciliation Entries

Fiscal Consequences

Tax liability for Interest income

Interest income from bank deposits is taxable income.

For companies:

• Corporation tax applies at the relevant UK rate
• Recognition timing follows accrual accounting principles
• Deduction for related costs

For private individuals:

• Savings interest rules depend on total taxable income and allowance thresholds
• Tax treatment is handled through the UK tax return process where applicable
• Settlement takes place through HMRC processes

Right of deduction

Costs related to bank deposits may be deductible:

• Bank fees and account maintenance costs
• Currency hedging costs
• Advisory fees

Risk management

Deposit guarantee

In the UK, the Financial Services Compensation Scheme (FSCS) generally protects eligible deposits up to GBP 85,000 per person, per authorised bank or banking group.

Important Points:

• Automatic coverage for eligible deposits at authorised institutions
• Per eligible depositor and per authorised institution
• Includes eligible accrued interest up to scheme limits
• Payout timeline follows FSCS rules

Spread of Risk

For larger amounts, risk spreading is recommended:

• Several banks to maximize warranty coverage
• Various products (savings account, installments)
• Currency diversification for international companies
• Maturity spread for term deposits

Liquidity management

Optimization of bank deposits

Effective liquidity management requires a balance between availability and return.

Strategies:

1. Liquidity forecast to plan needs
2. Staircase deposits with different maturities
3. Automatic transfer between accounts
4. Interest rate optimization through negotiation

Liquidity reserves

Companies should maintain liquidity reserves for:

• Seasonal variations in cash flow
• Unforeseen expenses and investments
• Market uncertainty and cyclical fluctuations
• Growth opportunities that require quick action

Digitization and Modern Banking Services

Electronic Banking Services

Modern banking services affect accounting:

• Real-time updates of account balance
• Automatic categorization of transactions
• API integration with accounting systems
• Mobile banking for quick access

Accounting Implications

Advantages:

• Reduced manual work when reconciling
• Faster registration of transactions
• Better control and overview
• Automatic reporting

Challenges:

• System integration and compatibility
• Computer security and privacy
• Backup routines in the event of a system error
• Competence requirements for the staff

Internal control and routines

Establishment of control routines

Good control routines for bank deposits include:

Daily Routines:

• Check of account balance
• Registration of transactions
• Follow-up of deviating records
• Backup of data

Monthly Routines:

• Bank reconciliation for all accounts
• Interest rate control and periodization
• Currency conversion if necessary
• Reporting to management

Division of responsibility

Role distribution:

• Accountant: Daily registration and reconciliation
• Financial manager: Monthly control and reporting
• Daily manager: Approval of major transactions
• Auditor: Annual control and confirmation

Reporting and Analysis

Financial Reporting

Bank deposits are presented in financial reports:

Balance:

• Current assets - Bank and bank deposits
• Specification of different account types
• Currency distribution if necessary
• Tied funds as a separate entry

Cash flow statement:

• Changes in bank deposits
• Interest income from financial activities
• Currency effects on cash

Key figures and Analysis

Important key figures:

Future Development Features

Digital Currencies

The central bank’s digital currency (CBDC) may affect future bank deposits:

• Direct access to central bank money
• Reduced need for traditional bank accounts
• New accounting challenges and standards
• Changed risk profile for deposits

Sustainable Investments

Increasing focus on ESG criteria affects the choice of bank and products:

• Green savings products with an environmental focus
• Ethical investment alternatives
• Reporting of sustainability impact
• Regulatory requirements for transparency

Conclusion

Bank deposits are a fundamental part of the company’s financial management and require careful accounting treatment. Correct handling of different deposit types, interest income and currency exposure is critical for:

• Accurate financial reports and basis for decisions
• Effective liquidity management and risk control
• Tax compliance and optimization
• Internal control and routines for financial management

By following established accounting principles and implementing good control routines, companies can ensure optimal management of their bank deposits while meeting all regulatory requirements.

For more information on related topics, see our articles on bank reconciliation , working capital , deposit and balance sheet .