Journal Entry for Funds Transfer

Fund transfer is the movement of funds from one account to another account in the same entity. The journal entry is made at the entity level which owns both bank accounts.

The company or entity usually owns many bank accounts which represent by separated charts of accounts. They have bank accounts in different banks to improve the settlement of funds with customers or suppliers. It allows the customers to transfer cash to their preferred bank. It also allows the company to use the bank accounts for suppliers’ settlements which may reduce the bank charge.

So at any point in time, the balance between those accounts will fluctuate. And the company needs to transfer the fund from one account to another to support the operation. When one account has too much cash, the company needs to transfer it to another for settlement with the supplier. Moreover, the company may keep some cash in the fixed deposit/saving to earn some interest when they have surplus cash. When they need cash, they simply transfer it back to the checking account.

The cash just moves from one sub bank account while increasing in another bank account. So the total cash at bank on the balance sheet will not change.

It excludes the transfer of funds from a cash account to a bank account and vice versa. The movement of cash from bank account to cash account is considered as a cash withdrawal. The company withdraws the money from bank and uses the cash to support other expenses. On the other hand, the movement of cash on hand to the cash at bank is considered a cash deposit.

If the bank accounts are under different entity levels, it is the transfer of cash between two different entities. The cash-out entity will record the receivable balance. The entity that receives cash needs to record a liability.

Journal Entry for Funds Transfer

Funds transfer is the movement of cash from one account to another. So it is just the move of cash within the company. We simply debit cash in one account and credit cash in other accounts.

The journal entry is debiting cash at the received bank (A) and credit cash at the transferred bank (B).

The cash will increase in bank account A and decrease in bank account B but the whole cash amount will not change on the balance sheet.

Journal Entry for Funds Transfer Example

Company ABC owns several bank accounts in different banks. Two of the bank accounts are in Bank of America and Standard Chartered.  On 01 April, company needs to transfer cash from bank of America to Standard Chartered bank. The fund that needs to transfer is $ 500,000. Please prepare the journal entry for this fund transfer.

It is just the transfer of funds (cash) from the bank of America account to the Standard Chartered Account.

The journal entry is debiting Standard Charter Bank account $ 500,000 and credit Bank of America Account $ 500,000.

The total cash at bank will not change at all. It is just the movement of cash from bank of America to the standard chartered.

Journal Entry for Funds Transfer between two company

The transfer of funds from one company to another will not consider as fund transfer. It is considered as a loan from one entity to another.

The entity that transfers out the cash needs to record loan/receivable base on the term of borrowing. The loan will be classified as the assets on the balance sheet. The company expects to receive it back in the future based on the term and conditions.

The company needs to make journal entries by debiting loan receivable and credit cash out.

The company that receives cash will require to record the loan payable which is the liability to the creditor. The classification of this liability will depend on the term of the loan. The company has the obligation to pay back the loan base on the term and conditions.

The journal entry is debiting cash received and credit loan payable.