How is a bank overdraft generally treated in a statement of affairs?
Correct answer: C. As a current liability
- A. As a fixed asset
- B. As a current asset
- C. As a current liability
- D. As a capital receipt
Explanation
A bank overdraft is an amount owed by the business to the bank, so it is a liability. It is normally presented as a current liability because it is payable through the banking arrangement.
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About Incomplete Records
Incomplete records require profit and financial position to be reconstructed when a complete double-entry system is unavailable. Methods include statements of affairs, capital comparisons, control accounts, cash summaries and margin calculations to find missing sales, purchases, expenses, assets, liabilities and drawings, while distinguishing business profit from changes in capital.
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