My bank account is always on a negative balance because I have an overdraft agreement with the bank, which allows me to use my funds plus, let say, $50k (the overdraft). When reconciling the bank account, I enter the ending balance as a negative and my bank reconciliation balances. Should not I record the 50k overdraft as a long-term liability for my cash flow to be more accurate? My cash flow has a negative ending balance because of the overdraft. If so, how without unbalancing my bank account reconciliation?.
Hi! You COULD book an entry to reclass the overdraft to Other Current Liabilities. It wouldn't be long term. Unless you need to present clean financials to a bank or some other stakeholder, this creates extra work. Essentially you would book the entry on (eg) June 30, 2023 for whatever the O/D was. Then you would reverse that on 7/1/23 so you don't leave this permanent entry sitting in the account that will never clear. Plus at the end of each month the amount will be different, or you may not be overdrawn one month.
Thanks for this. Just bought quickbooks 2013 pro and am still learning the basics of accountancy and this has helped me realise what cashflow is! Thanks
You "could" be right, but I don't think so - lines of credit are considered "short term" which for liabilities (just like credit cards) goes in operating. A long term liability (e.g. an EIDL loan) goes in Financing Activities.
This is GREAT content. Thank you!
Thank You!
Thank you!
My bank account is always on a negative balance because I have an overdraft agreement with the bank, which allows me to use my funds plus, let say, $50k (the overdraft). When reconciling the bank account, I enter the ending balance as a negative and my bank reconciliation balances. Should not I record the 50k overdraft as a long-term liability for my cash flow to be more accurate? My cash flow has a negative ending balance because of the overdraft. If so, how without unbalancing my bank account reconciliation?.
Hi! You COULD book an entry to reclass the overdraft to Other Current Liabilities. It wouldn't be long term.
Unless you need to present clean financials to a bank or some other stakeholder, this creates extra work.
Essentially you would book the entry on (eg) June 30, 2023 for whatever the O/D was. Then you would reverse that on 7/1/23 so you don't leave this permanent entry sitting in the account that will never clear. Plus at the end of each month the amount will be different, or you may not be overdrawn one month.
@@nerdenterprisesThank you, this helps
Thanks for this. Just bought quickbooks 2013 pro and am still learning the basics of accountancy and this has helped me realise what cashflow is!
Thanks
Glad it helped!
Well done!
Glad it helped. If you are learning the basics you may want to take my online bookkeeping course. The link is in the description above.
Great, thanks!
@TheChrisFleury Thanks Chris! Nice to see people coming over from other networks and connecting with me here!
Nice layout however one correction - Line of Credit should not be in Operating Activity but Financing Activity
You "could" be right, but I don't think so - lines of credit are considered "short term" which for liabilities (just like credit cards) goes in operating.
A long term liability (e.g. an EIDL loan) goes in Financing Activities.
Thank you!
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Everything we do is offsite / remote. Just visit our website at www.NerdEnterprises.com
Analyzing The Statement Of Cash Flows In QuickBooks