When a company has cash available in another account in the same bank at which an overdraft has occurred, the company will:
A) offset the overdraft against cash account.
B) report the same in the notes to financial statement.
C) report the bank overdraft amount as account payable.
D) classify the bank overdraft as compensating balance.

Question

Quizplus · Accepted Answer

When a company has cash available in another account in the same bank at which an overdraft has occurred, the company can offset the overdraft against the cash account to reduce or eliminate the overdraft balance. This is typically done through an automatic transfer between accounts, commonly known as a sweep account. Reporting the overdraft in the notes to the financial statements or classifying it as a compensating balance would not address the issue of the actual overdraft balance. Reporting it as an account payable would be incorrect since it's a liability owed to the bank rather than a vendor.

When a Company Has Cash Available in Another Account in the Same