Bank overdraft
A bank overdraft arises when withdrawals exceed funds in a bank account and the business owes the bank. It normally appears as a credit balance in the business’s bank ledger and as a current liability. For a statement of cash flows, a narrower rule may include a repayable-on-demand overdraft within cash and cash equivalents when it is an integral part of cash management; this does not apply automatically to every overdraft.
Worked example
A bank ledger starts with a $500 debit balance and records a payment of $800. The resulting $300 credit balance represents an overdraft. Further receipts reduce the amount owed.
Common mistake
The bank statement uses the bank’s perspective, so its debit/credit descriptions may be the reverse of the business’s ledger.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | F1 | Direct | July 2027–August 2028 |
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| CIMA | F1 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |
Related terms
Also called: overdraft