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ACCA Applied Knowledge · Financial Accounting · Bank reconciliations

Which statement about a corrected bank overdraft in the financial statements under IFRS is correct?

A bank overdraft is presented as a current liability, and it can only be netted against positive bank balances where a legal right of set-off exists and net settlement is intended. It is not an asset or part of equity.

  1. AIt is shown as a current liability unless a right of set-off exists against a bank account in debit at the same bankCorrect
  2. BIt is always deducted from cash and cash equivalents in the statement of financial position
  3. CIt is shown as a non-current asset with a negative value
  4. DIt is shown within equity as a reduction in retained earnings

Explanation

An overdraft is a liability to the bank and is presented as a current liability. Offsetting with positive balances is allowed only where a legal right of set-off exists and the entity intends to settle net. It is never an asset or an equity item.

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