Bank Interest Paid

This Overheads code records the cost of bank interest paid incurred in running the business. As an expense account, it normally carries a debit balance: debit entries increase the balance (recording new costs) and credit entries decrease it (for example, correcting an error or a refund received).

Real-world examples

Seasonal retail or hospitality

A seasonal retailer or hospitality business runs an overdrawn current account through its quiet months, drawing it back down once trading picks up. The bank calculates interest daily on the overdrawn balance and debits it automatically each month — say £145 for a particular month. Interest is a financial service and falls entirely outside the scope of VAT, so there's no VAT line at all: a debit of £145 to 7900 (Bank Interest Paid) and a credit of £145 to 1200 (Bank Current Account).

Construction subcontractor

A construction subcontractor uses an overdraft or revolving facility to bridge the gap between paying for materials and labour and being paid by the main contractor — a gap widened further by CIS deductions and retentions held back from what's owed. A month's interest of £310 is a debit of £310 to 7900 and a credit of £310 to 1200. The mechanics are identical to the seasonal retailer above, but here the driver is the payment cycle rather than seasonality.

Commonly confused with

Because code 7901 (Bank Charges) sits right next to this one in Overheads, it's a common mis-posting target. Code 7900 is specifically for bank interest paid, while 7901 covers bank charges — similar in nature, but keeping them separate is what makes the overheads section of your management accounts meaningful rather than a single lumped total.

What a mis-posting here costs you

An error posting to Bank Interest Paid won't change total overhead spend, but it will distort the overheads breakdown that's usually reviewed line by line each month to spot cost creep.

Other codes in Overheads