In The Financial Statements The Bank Overdrafts Will Be Classified As What?
Actually, the bank provides the bank overdraft facility upto a limit to the account holder in case he needs more money than the amount deposited into his account. When the depositor deposited money into his account then this exceeding amount will be deducted from the deposited amount. For example, if the depositor deposited $5000 into the checking account, then the bank will deduct $1000 as a bank overdraft from the deposited money and remaining ($5000 - $1000) $4000 will be credited to depositor’s account.
From the points view of depositor’ s business, the journal entry to record
for bank overdraft is to debit cash account, as the money is coming into the
depositor’s business, and credit bank overdraft account, as the amount has to
be paid back to bank by the depositor, with the amount exceeding the deposited amount
in the bank account. The bank account of depositor shows negative balance as
the depositor withdrew more money than he had in his bank account. The amount
to be received by the bank from account holder is an asset for the bank. When
the account holder deposited the amount in his bank account, then the amount of
bank overdraft is deducted from his account which reduces the liability of the
depositor.
For example, if the account holder withdrew $6000 while in his account only $5000 was kept, then ($6000 - $5000) $1000 is bank overdraft and the entry to be made is to debit cash account with $1000 and credit bank overdraft with $1000 in the books of account of depositor.
So, bank overdrafts, if material, generally should be reported as a current liability on the balance sheet.
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