How to present an overdraft on a balance sheet

WAD2001
WAD2001 Feels At HomeRegistered Posts: 38
Hi

If a business has an overdraft of £10,000 in a current account and a credit balance of £12,500 in another bank account say a savings account, how whould you show this on the balance sheet?

Current Assets Bank £0

Current Liabilities Bank Overdraft (£2,500)

or current Assets Bank £2500

Thanks

Comments

  • Morpheus1980
    Morpheus1980 Well-Known Registered Posts: 120
    I could be wrong, but would you not have the £10,000 overdraft as a current liability (bank overdraft) and the £12,500 as a current asset (bank)?
  • WAD2001
    WAD2001 Feels At Home Registered Posts: 38
    I could be wrong, but would you not have the £10,000 overdraft as a current liability (bank overdraft) and the £12,500 as a current asset (bank)?

    Hi

    Thank you for your reply, I have just spoken to an accountant who has advised that it does not really matter which way your do it as long as your consistant, personal preference really. It ok to show the whole amount as a poistive figure in Current Liabilities and Ok to show a positive bank figure in current assets and also an overdraft figure in current liabilites as ultimately the end result for Net current assets will be the same
  • Steve Collings
    Steve Collings Experienced Mentor Registered Posts: 997
    I would not be offsetting a liability against an asset as that goes against the Statement of Principles. Assets and liabilities should never be offset against one another UNLESS there is a legal right of set-off! And it isn't correct to show a positive creditor in the balance sheet.

    You should always show an 'in hand' bank account as an asset and an overdraft as a liability.

    Kind regards
    Steve
  • omega man
    omega man Trusted Regular Registered Posts: 283
    I agree with Steve as this also has implications for various ratios. These you will learn later on level 4.
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