Difference between revisions of "Overdraft"

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

Latest revision as of 12:29, 29 October 2020

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