bank overdraft

manutd4life

i'm doing a project for accounting in college and one of the questions i have to answer is:

• Explain to the bank manager why the business bank statement shows your bank overdraft as a debit balance and why your accounts show the bank overdraft as a credit balance.

any help would be grateful

Jadaol

Hi, From the bank's perspective you owe them the money, so you are a debtor/asset in their accounts and it's a debit balance.
From your perspective, (also) you owe them money, and this is a liability in your accounts and so is a credit/liability balance for you.

manutd4life

cheers thanks a mil

djk1000

the bank statement is the relationship between you and the bank, from THEIR perspective.

If you have money in the bank (you're in the black), then they owe you money, in your accounts "Bank" would be a debit balance because they are a debtor and the money is your asset. But on their statement, they owe you money and you are their creditor, so it shows as a credit balance.

If you are using your overdraft (in the red), you owe them money, it would be a credit balance in your books (your liability) and a debit balance in their books/on their statement (their asset as you are their debtor)