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what is the meaning of overdraft account?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Pinky asked about 3 years ago

what is the meaning of overdraft account? How borrowers can use overdraft facility wisely?

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6 Answers
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Pankaj answered over 2 years ago

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.

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Open uri20170510 32134 1c996lj?1494421732 Anil answered over 2 years ago

The overdraft means the bank provide such of facilities in which the bank account holder get money in his or her account when he required. Simply it is also mean that the person who is has current account in the bank & have same amount of deposits in there Account , and account holder issue cheque which is more than in his accounts balance than bank may provide client to take or withdrew over or additional amount from account with previous approval of client is called the over draft. However the provide thise type of facilities with higher or same minimum charges which the rbi fixeed from time to time . The facilities of overdraft is highly useful for small trader or the business man which is in cash flow position is not regular. The any man can take facilities of overdraft from bank with the simply application by the the trader or account holder in wrritting to bank

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 CA Sandeep Bohra answered almost 3 years ago

Dear friend, **Meaning** An extension of credit from a lending institution when an account reaches zero. An overdraft allows the individual to continue withdrawing money even if the account has no funds in it. Basically the bank allows people to borrow a set amount of money. In other words, A credit agreement made with a financial institution that permits an account holder to use or withdraw more than they have in their account, without exceeding a specified maximum negative balance. Establishing an overdraft facility with a bank can help an individual or small business with short term cash flow problems, although the negative balance typically needs to be repaid within a month.An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". The facilities of overdraft is highly useful for small trader or the business man which is in cash flow position is not regular.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 nayan answered almost 3 years ago

Hi dear.. Your question is about the meaning of the term "Over draft". The overdraft means the bank provide such of facilities in which the bank account holder get money in his or her account when he required. Simply it is also mean that the person who is has current account in the bank & have same amount of deposits in there Account , and account holder issue cheque which is more than in his accounts balance than bank may provide client to take or withdrew over or additional amount from account with previous approval of client is called the over draft. However the provide thise type of facilities with higher or same minimum charges which the rbi fixeed from time to time . The facilities of overdraft is highly useful for small trader or the business man which is in cash flow position is not regular. The any man can take facilities of overdraft from bank with the simply application by the the trader or account holder in wrritting to bank

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 sawan answered almost 3 years ago

An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed rate. If the negative balance exceeds the agreed terms, then additional fees may be charged and higher interest rates may apply.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Prity answered almost 3 years ago

What is the meaning of overdraft account? How borrowers can use overdraft facility wisely? 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.

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