ECONOMICS

Detailed explanation-1: -As a result, an overdraft is a flexible source of finance, in the sense that it is only used when needed. Bank overdrafts are excellent for helping a business handle seasonal fluctuations in cash flow or when the business runs into short-term cash flow problems (e.g. a major customer fails to pay on time).

Detailed explanation-2: -Finding a flexible line of credit that gives your business quick access to funds as and when they’re required could be a simple way to ride out a cashflow storm. Short-term business loans, company credit cards, overdraft facilities and invoice finance can all provide quick access to cash.

Detailed explanation-3: -A bank overdraft is a facility that will allow you to withdraw more money from your account than is available. A bank overdraft is a short term source of finance.

Detailed explanation-4: -Increase in bank overdraft will be shown as cash inflow from financing activity and decrease in bank overdraft as outflow of cash from financing activity. As an alternative, it may be treated as a component of cash and cash equivalents which forms an integral part of an entity’s cash management.