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Overdraft Facility versus Cash Credit – Mystery Unveiled

Introduction – Overdraft Facility versus Cash Credit – Mystery Unveiled

Generally, overdraft facility and cash credit facility are used inter-changeably. However, there are differences between the two concepts.

Similarities and Differences – Overdraft Facility versus Cash Credit – Mystery Unveiled

Bank Overdrafts, if forms an integral part of entities cash management, it will be included as a component of cash and cash equivalent.

A characteristic of such banking arrangements is that the bank balance often fluctuates from being positive to overdrawn.

Temporary book overdrafts are treated by certain enterprise as negative cash balance and are netted off against positive balances. Some other reckons as part of changes in working capital on account of normal operations.

This is a debatable issue and arguments on either side cannot be considered totally justified.

Setting off cash credit account dues against cash and cash equivalents is not correct.

Temporary Overdrafts: As a part of ‘float-cash’ management, cheques are issued by entities in excess of positive balances such that when the cheques get presented there would be adequate balances to meet the payments.

Cash at bank, for entities maintaining accounts with different banks may, by set-off, still show an overall positive balance, despite there being overdraft in books, for some banks.

Expert Advisory Committee (EAC) of the Institute of Chartered Accountants of India (the ICAI) has opined that positive and negative balances with different banks should not be set off.

Cash credit: some banks provide a borrowing facility styled as Cash Credits. The structure of this arrangement permits enterprises drawing on an account, with an added flexibility to deposit moneys realized on an on-going basis, to minimize interest burden.

The excess of drawings on the account over deposits made represents at any point of time, the amount borrowed. The amounts borrowed are repayable on demand.

This is often a source of finance that extends for a significant period of time. Cash Credits bear the characteristics of a financing arrangement, and cannot be deemed to represent a negative cash balance that can be offset against cash and cash equivalents.


Friends, now you must have come aware of the fact that Overdraft Facility which are used as synonym or inter changeably. The fact is not so.

Hope, you have liked my first ever blog – Overdraft Facility versus Cash Credit – Mystery Unveiled.

Your comments and suggestions on my blog Overdraft Facility versus Cash Credit – Mystery Unveiled is highly solicited.


Overdraft Facility versus Cash Credit - Mystery Unveiled

Overdraft Facility versus Cash Credit – Mystery Unveiled


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Introduction – Overdraft Facility versus Cash Credit – Mystery Unveiled

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