Bank overdraft
Bank overdraft is a negative bank balance repayable on demand, reported as a current liability rather than netted against positive cash, though it may count as a cash equivalent in the cash-flow statement.
See it move
A bakery's cash book opens the month with €1,000. During the month it receives €12,400 from customers and pays out €14,900 for suppliers, wages and rent. The closing position is €1,000 + €12,400 − €14,900 = −€1,500, so the account is €1,500 overdrawn and reported as a current liability.
The formula
Variables
- Closing bank balance (€)
- Opening bank balance (€)
- Receipts (€)
- Payments (€)
Gives the cash-book closing position; a negative result is the overdraft reported as a current liability.
Check yourself
A firm's cash book opens the year with a favourable (debit) balance of €2,800. During the year it receives €31,600 in receipts and pays out €38,100. At the year end, how should the resulting bank position be reported in the financial statements, and for what amount?