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CBSE Class 12-commerce Answered

sir/mam my question is in cash flow statement why we are taking bank overdraft in Financing activity insted of working capital changes  but iam pretty sure that it will come only in working capial changed in Operaing activity heading
Asked by narsing7434 | 18 Mar, 2019, 02:49: PM
answered-by-expert Expert Answer

A bank overdraft is a credit agreement made by the account holder with a bank that allows the account holder to withdraw or utilise an amount which is more than the actual balance in the account holders account. However, there is a limit specified by the bank for such withdrawal amount and interest is charged on the amount withdrawn. 
Financing activities are those activities that change the size and composition of the owner’s capital (i.e., Equity and Preference Share Capital in case of a company) and borrowings of the enterprise. Since, a bank overdraft is more or less a credit facility availed by the account holder to avail necessary finances or funds for his business, it is correctly classified as a Financing Activity.

 

Answered by Surabhi Gawade | 18 Mar, 2019, 03:17: PM

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