Tuesday 1 October 2013

Accounting for bank and book overdrafts and their cash flow presentation

Description of bank and book overdrafts 


Two situations we are going to discuss are bank overdrafts and book overdrafts.

Bank overdraft takes place when a company doesn’t have sufficient funds in a bank account to cover presented checks, but the bank honors them anyway.  This creates a short-term liability because the company will have to settle the obligation with the bank eventually.

Book overdraft is a situation when a company issues checks in excess of what the bank balance is, but those checks have not been presented for clearance to the bank yet.  Thus, this is an overdraft on the company’s books.

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1 comment:

  1. Bank overdraft takes place when a company doesn’t have sufficient funds in a bank account to cover presented checks, but the bank honors them anyway. commercialisti milano

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