This refers to the report “Who to believe: Vadra’s bank or balance sheet?” (October 12). To any accountant, the explanation for the overdraft is pretty straightforward. The clue lies in the phrase “book OD” reflected against the Corporation Bank entry.
A book OD arises when the drawer of a cheque issues a cheque with insufficient balance in his bank account. As any accountant will tell you, the issuance of a cheque will deplete the bank balance and in terms of the double-entry accounting principle, a corresponding asset account will be created — this could either be a fixed asset or reflected as “loans and advances” if it was an advance/part payment.
In Sky Light’s books of account, the bank balance (which should ordinarily show a debit or positive balance) has become a negative number — hence, will be recorded on the liabilities side of the balance sheet and shown as a book OD.
Corporation Bank is absolutely correct in asserting that it never sanctioned a formal overdraft facility, i.e. one in which clients would be permitted to overdraw their account up to a particular limit. And you will agree that Corporation Bank, in this instance, cannot be held responsible for its customers action of drawing a cheque when it had an insufficient balance.
The issue to consider is whether Sky Light had sufficient funds in its account with Corporation Bank when the cheque was presented for payment in the next financial year, and the answer to that is presumably “yes”.
Vikas Kulkarni, Mumbai
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