Question

What will be the entry of settlement of Bank overdraft?

Answer 1

This transaction affects two accounts..

bank overdraft a/c and cash/Bank account

As Per the rules of accounting..

an increase in an asset /decrease in a liability should be debited to that extent

an increase in a liability /decrease in an asset should be debited to that extent

So..here bank overdraft liability is being settled.So it should be debited..

and we are paying cash/bank to meet that liability..So asset will be decreased..So itshould be credited

The Journal Entry will be

Bank overdraft a/c Dr xxxx

To Cash/Bank a/c xxxx

(being liability settled)