Overdraft: Difference between revisions
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2. '' | 2. ''Financial reporting - balance sheet - liabilities.'' | ||
The amount by which an account is overdrawn. | The amount by which an account is overdrawn. | ||
Also known as an overdraft balance. | Also known as an overdraft balance. | ||
:<span style="color:#4B0082">'''''Example: Overdraft'''''</span> | |||
:We have an overdraft of £50k at the start of April. In other words we owe £50k to the bank. | |||
:We need to put more money into our account. | |||
:Now we deposit £60k into the account during the month of April. | |||
:This repays our overdraft, with some cash left over. | |||
:At the end of April, our bank account now has a positive amount in it, of: | |||
::-50 + 60 = 10k | |||
:We now have £10k cash in our bank account at the end of April. | |||
:The situation of a positive amount in the bank is known as cash at bank (or being 'in credit'). | |||
== See also == | == See also == | ||
* [[Balance]] | * [[Balance]] | ||
* [[Balance sheet]] | |||
* [[Bridge financing]] | * [[Bridge financing]] | ||
* [[Concentrate]] | * [[Concentrate]] | ||
| Line 24: | Line 45: | ||
* [[Revolving credit facility]] | * [[Revolving credit facility]] | ||
* [[Round tripping]] | * [[Round tripping]] | ||
* [[Uncommitted]] | |||
[[Category:Liquidity_management]] | [[Category:Liquidity_management]] | ||
Latest revision as of 16:20, 12 June 2021
1. Facility.
An overdraft facility is a line of credit which is applied to a current account and may be drawn on demand.
It is also known as a demand loan, as it is repayable to the bank on demand by the bank.
For this reason, it is risky to use overdrafts for core financing needs.
2. Financial reporting - balance sheet - liabilities.
The amount by which an account is overdrawn.
Also known as an overdraft balance.
- Example: Overdraft
- We have an overdraft of £50k at the start of April. In other words we owe £50k to the bank.
- We need to put more money into our account.
- Now we deposit £60k into the account during the month of April.
- This repays our overdraft, with some cash left over.
- At the end of April, our bank account now has a positive amount in it, of:
- -50 + 60 = 10k
- We now have £10k cash in our bank account at the end of April.
- The situation of a positive amount in the bank is known as cash at bank (or being 'in credit').
