O level Results Out

Principles of accounts:Bank Overdrafts

Home » Latest » Principles of accounts:Bank Overdrafts

Principles of accounts:Bank Overdrafts

Business often make use of Overdrafts. Image credit telegraph.co.uk

Business often make use of Overdrafts. Image credit telegraph.co.uk

ZIMSEC O Level Principles of Accounts Notes: The Cash Book:Bank Overdrafts

  • Bank overdrafts are a way for businesses to borrow money in the short term
  • With bank overdrafts the business is allowed to withdraw and/or make payments that exceed the business’s bank balance
  • For example a business has a balance of $200 in its bank account
  • The business might have an agreement with the bank that allows the business to overdraw the account to say up to $1000
  • The business can thus make a withdrawal $500
  • Under normal circumstances the business’s account falls under Assets i.e. when the account has a debit balance in the business’s books
  • When the business overdraws its account the bank account will now have a credit balance in the business’s books
  • Under these circumstances the bank account becomes a current liability
  • It will be shown under “Current Liabilities” in the Balance Sheet/Statement of Financial position
  • Sometimes the words O/D or their equivalent are written next to the bank balance to show that it has negative balance.

To access more topics go to the Principles of Accounts Notes.

By | 2017-01-17T11:14:33+00:00 March 13th, 2016|Notes, Ordinary Level Notes, Principles of Accounts Notes|0 Comments

About the Author:

He holds an Honours in Accountancy degree from the University of Zimbabwe. He is passionate about technology and its practical application in today's world.

Leave A Comment

fourteen − 2 =