Reconciling overdrafts

An overdraft means you have taken out more than you put in: you owe the bank. It is a credit balance in the cash book and a debit balance in the passbook, often marked Dr. or O/D. It is never a favourable balance.

The easy way to handle it: write the overdraft as a negative number, then make exactly the same additions and deductions as for a favourable balance. If the answer is negative, it is an overdraft; if it turns positive, there is money in the bank.

Keep the meaning in mind. Starting from a cash book overdraft, cheques issued but not presented are still added: the bank has not paid them yet, so you really owe the bank less. Interest on the overdraft and bank charges debited by the bank are deducted: they make you owe more.

Rakesh: −8,000 − 2,000 + 800 − 60 − 100 = −9,360. So the passbook shows an overdraft of ₹9,360.

Agrawal Traders: −1,18,100 − 12,400 + 27,300 + 1,75,200 − 8,800 = +63,200. The overdraft has turned into a favourable passbook balance of ₹63,200.

Asha & Co., starting from the passbook: −20,000 + 2,000 + 200 − 6,500 + 6,000 + 500 = −17,800, an overdraft of ₹17,800 as per cash book.