Overdraft: Difference between revisions

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A line of credit which is applied to a current account and may be drawn on demand.   
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.
 
 
:<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').


It is also known as a demand loan, as it is repayable to the bank on demand.




== See also ==
== See also ==
* [[Balance]]
* [[Balance sheet]]
* [[Bridge financing]]
* [[Bridge financing]]
* [[Concentrate]]
* [[Facility]]
* [[Liabilities]]
* [[Overdrawn]]
* [[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').


See also