Service charges for electronic payments are paid by which account?

• A. Compensating Balance Account
• B. Trust Fund
• C. Budget Appropriation
• D. Capital Reserve

Answer: (A)

When government accounts handle bank fees for electronic payments, the charges are paid from a Compensating Balance Account. A compensating balance is cash deposited with the bank to offset banking costs and to secure favorable terms for services like electronic payments. When a service charge is assessed, it reduces that cash reserve, effectively charging the expense against the compensating balance rather than a general operating fund. The other accounts serve different purposes: a Trust Fund is for restricted receipts, a Budget Appropriation controls authorized spending, and a Capital Reserve is set aside for future capital needs, not for routine banking charges. Therefore, the service charges are paid from the Compensating Balance Account.