How do you set up an overdraft facility??

Mike or Penny Novack stepbystepfarm at mtdata.com
Mon Jun 29 21:13:04 EDT 2009


>
> Since my line of credit is actually part of the chequing account, both 
> the credit union and I deal with them as one thing.  You might ask 
> your bank or whatever how they will show it on the monthly statement.  
> If it's only one account (that would be my guess), don't set up an 
> extra account.  As long as they're both done the same way, you will be 
> able to reconcile - for me that's the most critical aspect.
>
Well sort of. Had those here too. I'd set that up not as an asset but a 
liability. That you "draw" on the account via checks is irrelevant.

The key thing to understand is that we call accounts 'asset" or 
"liability" according to on which side of the ledger their balanced 
USUALLY are. But in both cases you are ordinarily making entires on both 
the debit and credit side of the accounts and nothing prevents the 
balance from being "negative" (positive on an unusual side of the ledger).

So you could treat an ordinary checking account that allowed overdrafts 
just like an ordinary checking account except that sometimes its balance 
might be less than zero (balance on the credit side of the account). But 
a "line of credit" account would be expected to NORMALLY be a liability 
so I'd set it up that way. I'd have to think long and hard if that were 
supposedly a regular checking account but the normal state of affairs 
was that it was a negative balance. In other words, only masquerading 
like a regular checking account.

Michael


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