Treatment of interest on bank overdraft in cash flow statement

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Solution

Dear student,
The interest on bank overdraft is added to the net profits before tax and extraordinary items in operating activities. And it is subtracted from financing activities.
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In which column (Plus or Minus) you will write the following while preparing bank reconciliation statement from the credit balance of cash book.

(i) Cheques paid into the bank but not collected.

(ii) Interest on bank overdraft.

Prepare a Bank Reconciliation Statement on 31st December 2009 for the following when overdraft as per pass book is Rs.20,000.

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(2) Interest on bank overdraft charged by the bank,but not entered in cash book Rs.1,000.

(3) Cheque deposited but not collected Rs.22,000.

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