A Bank Transfer is used when the transaction being made is between two accounts in the nominal ledger which are deemed to be bank accounts – examples are:
- Sterling Bank Current Accounts.
- Sterling Bank or Building Society Deposit or Savings account.
- Foreign Currency Bank Accounts.
- Credit Card accounts.
- Loan accounts.
- Business Mortgage Accounts.
- Till Floats.
- Petty Cash Accounts.
- Reserve or High Interest Accounts.
Why not a straightforward payment? There is a risk of duplication. e.g. A Petty Cash cheque is drawn for £500
The entry made in the Cash Book is Dr. Petty Cash Account £500 – Cr. Bank Account £500 (Payment)
The entry made (possibly by the cashier or person responsible for Petty Cash) is Dr. Petty Cash Account £500 Cr. Bank Account £500 (Receipt)
This results in errors of duplication in both nominal ledger accounts. This principle applies to all the types of bank acounts above. whilst you can say we’ll only make one entry a duplication will happen sooner or later.