When we talk about financial accounting, A financial overdraft is one of the terms in it. This term may sound foreign, but it is very important to understand, be it for business people or for those in the finance department.
Now on this occasion, we will discuss more deeply about financial overdraft in the world of financial accounting.
Contents
1 Definition of Overdraft
2 Can Everyone Do It?
3 Factors Occurring Financial Overdraft
3.1 Deliberately Taking a Loan
3.2 Bank Error
3.3 Bank Fee
3.4 Crime Victim
4 Overdraft Reporting in Accounting
5 Conclusion
Definition of Overdraft
In the world of finance or finance, the term overdraft is often known as an overdraft. Financial overdraft is a term to express negative account conditions.
This condition occurs because of the withdrawal of funds that are larger than the company’s account balance, especially if the type of account used is a current account. So the difference or excess nominal will automatically turn into debt.
Now if the customer is already in a condition of having debt, then the nominal will be a credit expansion.
Then, why can withdrawal funds exceed the balance in the account? For those of you who are used to using a savings account, you will definitely be confused about this. Because in a savings account, the withdrawal of funds certainly cannot exceed the balance and the account will not become negative.
However, in a checking account, you can withdraw funds that exceed the balance in the account. For example, to make a check with a nominal amount greater than the available balance in the account.
Can Everyone Do It?
Some of us may think that financial overdraft is something that is profitable. Because, we can borrow more easily to the bank, without the need to apply for credit, only have to withdraw funds that are greater than the balance, and it will automatically be considered a debt.
But it’s not that simple, because banks also certainly don’t want to lose by providing a financial overdraft feature to each of their customers. The bank must limit credit, because they know that if they give it to every customer, there will be a risk that it cannot be paid off.
Therefore, only special customers can enjoy the financial overdraft facility. Those who can enjoy this facility don’t have to worry about having their check rejected or having to pay a fine from the overdraft.
Customers who can enjoy this facility are usually those who have established good relations with the bank, so that the bank also believes in them.
If you get this facility, customers will be more free to make withdrawals, even if their account balance has touched zero. This facility is in great demand by business people because they can withdraw funds more easily.
Factors Occurring Financial Overdraft
Some of the factors for the occurrence of financial overdrafts are as follows:
1. Deliberately Taking a Loan
As previously explained, financial overdrafts will turn into debt automatically. This is what makes customers deliberately overdraft finances in order to obtain loans from the bank. Where this will increase their next deposit nominal automatically.
2. Bank Error
We all know that in the process of disbursing customer funds, humans are still involved. Although it has a lot of administrative technology and computers. For this reason, the risk of human error from bank officials when serving the disbursement of funds will still exist.
Of the many mistakes, a financial overdraft is one of the mistakes that can occur. Where bank officers recorded a nominal that was larger than it should be, even exceeding the balance in the account. Therefore, bank errors can also be a factor in the occurrence of financial overdrafts.
3. Bank Fee
Having an account in a bank can have consequences in the form of costs. The fees are also very varied, ranging from transfer fees, monthly fees, withdrawal fees, administration fees, and so on. Including unexpected fees that are sometimes applied by banks.
Now, when the bank applies an unexpected fee, while the balance position in the account is not enough, then it will become a financial overdraft automatically. For this reason, bank fees, especially unexpected costs, are one of the factors that cause financial overdrafts.
4. Crime Victim
The last factor in the occurrence of financial overdraft is the existence of criminal acts. Of course, we all know that bank accounts have been the target of criminal acts for a long time. Examples include check forgery, skimming, phishing, account hacking, credit card fraud, and others.
In general, those who commit criminal acts will target what is in the account. Where the result is not only a reduced balance but also a financial overdraft.
This will happen if it turns out that the withdrawal or withdrawal of money in the account, it turns out that the nominal amount is more than the available balance.
Overdraft Reporting in Accounting
In the company’s books, the overdraft will go into the current liability account. In addition, because the overdraft will become debt automatically, we must add it to the total debt.
If the overdraft is material, the recording process must be separated from the front of the company’s balance sheet. other options are still included in the records that are still related to it.
With this provision, any amount of overdraft will not be offset in the cash account. So even though the overdraft makes the cash balance minus, in accounting, the cash account is not written as a minus.
It will be a different story if an overdraft occurs in one account, while there is still a cash balance in another account, then the recording can still be done with a cash account. So, the offset on the account will still occur.
Conclusion
Based on the brief explanation above, we can draw the conclusion that a financial overdraft is taking or withdrawing an amount of money from a bank account or cash account whose amount exceeds the account balance so that it will automatically become a debt for the customer or company.
A financial overdraft can occur, especially for customers whose account type is a checking account. Because the withdrawal or withdrawal of money can exceed the available balance. So the balance will be a minus, even though in the accounting records it will not be a minus.