How are bank service charges and interest income recorded in the books?

• A. Bank service charges: Debit Bank Fees (Expense); Credit Cash. Interest income: Debit Cash; Credit Interest Revenue.
• B. Bank service charges: Credit Bank Fees; Debit Cash. Interest income: Debit Interest Revenue; Credit Cash.
• C. Bank service charges: Debit Cash; Credit Bank Fees. Interest income: Debit Interest Revenue; Credit Cash.
• D. Bank service charges: Debit Bank Fees; Credit Cash. Interest income: Debit Interest Revenue; Credit Cash.

Answer: (A)

Bank service charges are seen as expenses, so you record them with a debit to the expense account (Bank Fees) and a credit to Cash since cash leaves the company. Interest income comes from the business earning money on its deposits, which increases cash and increases revenue, so you debit Cash and credit Interest Revenue. This aligns with the basic rule: expenses and assets are affected by debits and credits in ways that increase or decrease them appropriately, while revenues are increased with credits. The described entries match these rules, making the option the best choice.