What is the treatment of cash credit in cash flow statement ?

Question

Answer

Treatment of Cash Credit in Cash Flow Statement

Cash credit is a type of short-term loan provided by banks to businesses to meet their working capital requirements. The treatment of cash credit in the cash flow statement is as follows:

Cash Inflow

Cash credit availed during the year is treated as a cash inflow in the cash flow statement.

Cash Outflow

The interest paid on cash credit is treated as a cash outflow under the operating activities section of the cash flow statement.

The principal amount repaid towards the cash credit is also treated as a cash outflow under the financing activities section of the cash flow statement.

Impact on Cash Flow Statement

Cash credit helps businesses to meet their short-term working capital requirements, which reflects positively on the cash flow statement as it shows an increase in cash inflow.

However, the interest paid on the cash credit and the principal amount repaid towards it is treated as a cash outflow, which reduces the cash balance of the business.

The overall impact of cash credit on the cash flow statement depends on the amount availed, the interest rate and the repayment schedule.

Conclusion

Cash credit is an important source of short-term financing for businesses. Its treatment in the cash flow statement helps in understanding the impact of this financing option on the cash position of the business.

Answer

Bank overdraft is to be treated as a reduction from cash and cash equivalents. So, the amount of bank overdraft will be deducted from cash and cash equivalents to ascertain the net cash and cash equivalents.Therefore, Closing Cash and Cash Equivalents = Opening Cash and Cash Equivalents - Bank Overdraft cash credit are bank overdraft are similar  I guessillustration 43 of ts I guess check it once..

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