Question

Question; In the case of a bank overdraft:

1. GAAP typically includes the amount in cash and cash equivalents.
2. IFRS typically includes the amount in cash equivalents but not in cash.
3. GAAP typically treats the overdraft as a liability, and reports the amount in the financing section of the statement of cash flows.
4. IFRS typically treats the overdraft as a liability, and reports the amount in the investing section of the statement of cash flows.

Short answer

Answer

Option (c) is the correct option.

Step-by-step solution

Meaning of Bank Overdraft

A credit facility known as an overdraft permit for withdrawing funds from a current or investment funds accounts even when there's no cash within the account or a balance as low as zero. A sort of bank credit restrain extension is the overdraft facility. It is argued that the authorized limit is "overdrawn."

Explaining the correct option

Overdrafts from banks are ordinarily respected as financing activities. Be that as it may, bank overdrafts are regarded as a portion of cash and cash reciprocals where demand-repayable bank borrowings constitute a fundamental component of the Company’s cash administration.The amount of the overdraft is normally reported in the financing section of the statement of cash flows under GAAP, which classifies it as a liability.

Explaining the incorrect option

Option (a) To be clear, the "Cash and Cash Equivalents" line item includes currency and investments resembling cash, such as actual cash in bank accounts. Examples of commercial paper, short-term government bonds, and marketable securities are cash and cash equivalents.

Option (b) Cash incorporates deposits made on demand and cash on hand. Cash counterparts are exceedingly liquid, short-term assets that can be effortlessly changed over into known sums of cash and are, as it were, slightly at risk of losing value.

Option (d) In agreement with IFRS Standards, bank overdrafts that are repayable promptly and are pivotal to the organization's cash management diminish the balance of cash and cash equivalents within the statement of cash flow