Bank Overdraft as a Liability

Definition of Bank Overdraft

Bank overdraft is a kind of credit facility provided by the bank to its customers. It allows the customer to withdraw more money than the balance available in their bank account up to a certain limit.

Current vs Non-Current Liabilities

Current liabilities are the obligations that are due and payable within one year or the operating cycle of the company, whichever is longer. Non-current liabilities, on the other hand, are the obligations that are due after one year or the operating cycle of the company.

Classification of Bank Overdraft

The classification of bank overdraft as a current or non-current liability depends on the terms and conditions of the overdraft facility. If the overdraft is repayable on demand, then it is classified as a current liability. However, if the overdraft facility has a specific repayment date, then it is classified as a non-current liability.

Factors Affecting Classification

The following factors need to be considered while classifying bank overdraft as a current or non-current liability:

- The terms and conditions of the overdraft facility
- The intention of the company regarding the repayment of the overdraft
- The ability of the company to repay the overdraft

Conclusion

In conclusion, bank overdraft can be classified as a current or non-current liability depending on the terms and conditions of the overdraft facility. It is important to consider the intention and ability of the company to repay the overdraft while classifying it as a current or non-current liability.

It is current liability as it is payable within the time period of less than 1 year generally.