A company is overdrawn on its current account with the bank. The amount overdrawn is shown in a company's balance sheet as:

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Prepare for the Qualified Financial Adviser Exam 2 with flashcards and multiple choice questions, complete with hints and explanations. Get exam-ready and increase your confidence with our comprehensive study materials!

Multiple Choice

A company is overdrawn on its current account with the bank. The amount overdrawn is shown in a company's balance sheet as:

Explanation:
Bank overdraft is a short-term obligation. When a company is overdrawn, it means the business owes money to the bank, so the account represents a liability rather than an asset. Because overdrafts are typically repayable on demand and arise within the normal operating cycle, they’re recorded as a current liability on the balance sheet. If the balance were positive (cash at bank), that would be a current asset, but an overdrawn balance flips the position to a liability. It isn’t a fixed asset or goodwill, which are separate asset types.

Bank overdraft is a short-term obligation. When a company is overdrawn, it means the business owes money to the bank, so the account represents a liability rather than an asset. Because overdrafts are typically repayable on demand and arise within the normal operating cycle, they’re recorded as a current liability on the balance sheet. If the balance were positive (cash at bank), that would be a current asset, but an overdrawn balance flips the position to a liability. It isn’t a fixed asset or goodwill, which are separate asset types.

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