Bank Overdraft In Balance Sheet

Bank Overdraft In Balance Sheet: Overdraft as short-term financing enables the company to meet working capital requirements and provides more than the remaining balance in its current account. It is possible to spend much money both for payment of goods (works, services), as well as for payment of salaries to employees and payment of taxes. The features of accounting for such a loan will be discussed further.

Recording Bank Overdrafts in a Balance Sheet
Recording Bank Overdrafts in a Balance Sheet

What Is Bank Overdraft In Balance Sheet?

Not too long ago, the concept of "overdraft" was used exclusively in the banking sector. This term refers to a short-term loan provided by a bank to a customer within the agreed amount by paying settlement documents for an amount that exceeds the actual balance in this account. However, with the introduction of electronic VAT administration and fuel sales, a tax overdraft has emerged.


  1. speed of payments
  2. provided without collateral, so there is no cost associated with the registration of mortgage property
  3. does not provide for verification of intended use, and therefore payments can be made at the discretion of the borrower
  4. paid off automatically at the expense of daily income
  5. in case of overdraft repayment on the day of arrears, interest on the use of credit funds is not paid at all
  6. a permanent and renewable source of borrowing
  7. automatic adjustment of the need for working capital in the account of the enterprise
  8. The main factors that determine the size of the overdraft are the reliability of the legal entity and the average annual current account turnover
Overdraft VAT payers understand the component of the formula defined in Clause 200 1 .3 of Art. 200 1Tax Code (overdraft), which increases the balance on the electronic account, is required to register tax invoices/adjustments calculations. 

Recall that an overdraft is the sum of the average monthly amount of VAT, which in the last 12 reporting (tax) months was declared by the payer before payment to the budget and repaid or deferred or deferred, as well as declared by the payer-agricultural company, which has chosen the special tax regime. 209 of the said Code. 

This figure is subject to automatic recalculation within the first six business days of that quarter. Recalculation is done by subtracting the amount of the previous increase and adding the amount of the increase according to the current conversion.

Accounting In Bank Overdraft In Balance Sheet.

Given the specifics, there are two ways to display overdrafts in accounting.

Option 1 (using account 601).Given that overdraft is a short-term type of financing, and its debt is nothing but a short-term loan debt, then its amount can be reflected in the CT of subaccount 601 "Short-term national bank loans". 

According to Kt, this account reflects the amounts of the loans received, and for Dt - their repayment (transfer to long-term liabilities, if there was a deferred payment, agreed with the bank). The transaction is recorded on the basis of a bank statement at the end of the day. 

That is, if a debit balance has appeared on such a statement on a certain date, then an entry is made Dt 311 Kt 601. At the same time, if the following bank statements show a decrease in overdraft (debt), then a reverse entry is displayed - Dt 601 Kt 311 (by the amount of reduction).

Option 2 (using account 31 only).By nature, an account is active and designed to account for the presence and movement of funds held in a bank account that can be used for current operations. However, if we deviate from the theoretical basis, it can be argued that the credit balance will indicate the debt of the company that has arisen in the current account. 

In fact, this is exactly what the Ministry of Finance of Ukraine proposes, which in the letter № 31-04200-30-5 / 7021 states: "the credit balance of the current account, which is formed on the overdraft loan, is reflected on the basis of the bank statement on the credit of the account 31" Accounts with banks "in Article "Short-term bank loans" of Section IV of the liability of the Balance Sheet (inline 1600 forms № 1, № 1-m, № 1-ms) ". 

From the explanation of the Ministry of Finance of Ukraine, it can be concluded that at the end of the quarter it is still necessary to make an accounting record Dt 311 Kt 601. This will allow you to "transfer" the overdraft into the bank's short-term loan with its subsequent display inline 1600 of the corresponding financial statement. At the same time, a reverse entry should be made at the beginning of the next quarter - Dt 601 Kt 311.

Interest on Bank Overdraft In Balance Sheet

The interest accrued by the bank for the use of the overdraft is recognized as an expense for the enterprise (paragraph 3 of TAS 31). Therefore, they are accounted for as other interest on Kt and are shown in the accounting records Dt 951 "Interest on credit" Kt 684 "Calculations on accrued interest". 

Accrued interest on the use of overdrafts is attributable to the cost of the reporting period (paragraph 6 of TAS 16). Payment of such interest is denoted by the account Dt 684 Kt 311 "Current accounts in national currency", and the write-off of expenses for the financial result - Dt 792 "Result of financial transactions" Kt 951.

In the situation where an overdraft was used to acquire a qualifying asset, overdraft interest is capitalized, that is, included in the value of the asset created. Correspondence of accounting operations of carrying out concerning accrual of interest - template (Дт 951 Кт 684). However, in the future, such costs are capitalized on Dt account 15 and Kt 951.

Pursuant to paragraph 4 of the said PBO, they do not capitalize but recognize the financial expenses as expenses of the reporting period:

  1. small business entities - legal entities;
  2. representative offices of foreign economic entities;
  3. legal entities that are not engaged in business (except budgetary institutions
Hi, myself Tahir Hassan, the founder of this blog. Being a good student I love blogging, as I'm passionate about it. Blogging provides me with a better space to put all my knowledge and experiences so that my visitors can get the benefit of it.
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