Hello there, Hope someone can help with this one - what to do with an overdraft in terms of current assets? In Q&A bank part 3: Q 3.23 has a balance sheet with a cash figure in the current assets that includes the overdraft liability Q 3.24 we work out a balance sheet with no cash figure in the current assets but an overdraft liability. Should there not be a current asset cash item to the tune of this overdraft? I can get it to balance but this train of thought has thrown me, any help would be much appreciated.
The balance sheet shows what the company owns (assets) and owes (liabilities) at a point in time. So, in Q3.23, on 31/12/06, KKK held a current asset of £34,500 in cash. It also had a current liability of £10,000 as an overdraft. This means that the bank has allowed the company to take out in cash more than it has got in its account. (If you had an overdraft agreement of £100 with your bank, you could draw out £100 in cash and owe the bank £100.) In Q3.24, the company has probably used its overdraft to pay for its raw materials etc so it has no cash. Hope this helps.
