1.31     Query

Presentations of Overdrawn Bank Balances as

in the Books of Accounts, in the Balance Sheet.

            Facts:

(1)       Some of XYZ’s Offices at the close of the accounting year inadvertently issued cheques in excess of the balances in the Bank accounts as per the Company’s books while as per the Bank Pass Books the accounts of the Company were not overdrawn because the cheques issued were presented for payments by the payees in the next Accounting Year. In this way the books of the Company showed overdrawn balances in some Bank Accounts.

(2)      For Balance Sheet purposes, the negative balance i.e., book overdrawn bank balances were grouped under “Sundry Creditors” and were shown on the ‘Liabilities’ side of the Company’s Balance Sheet, taking the view as if the cheques had not been drawn at the end of the year, the items which were treated as paid would have been outstanding at the date of the Balance Sheet under relevant heads of accounts on the Liabilities side and as such, the account was grouped under “Sundry Creditors”.

(3)        The Comptroller and Auditor General’s. Office has objected to the aforesaid presentation in the Balance Sheet. They have contended that these book overdrawn bank balances should have been deducted from the total balances of other bank accounts under “Cash at Bankers on Deposits” on ‘Assets’ side with an appropriate ‘Note’ in parenthesis that the amount included credit balances amounting to Rs………/-.

(4)        Question:

We shall feel highly obliged to have, at a very early date, your guideline with regard to the presentation in the Balance sheet of book overdrawn Bank balances under the abovementioned circumstances when there is no overdraft arrangement with the concerned banks.

                       Opinion                                                                                                                     December 31, 1975

1. Normally, bank overdrafts should not be set off against balances lying with banks unless both groups of balances are due to/from the bank. Even in such a case, a set off may not be appropriate in all cases, and the matter would have to be considered from the point of view of whether or not the bank in fact has a right of set off. If a bank overdraft is due from one bank, whereas the balance in favour of the company is lying with another bank, set off would not be appropriate in the ordinary course. If such a set off is made in exceptional circumstances, as for example, in the situation indicated in the query, the matter should be disclosed by way of an appropriate note.
2. On the question whether the overdraft balance could be included under sundry creditors, here again if such a course is adopted under exceptional circumstances as mentioned above, it can be done with an appropriate note that the sundry creditors include book overdraft amounting to Rs……../-

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