Which description matches overdraft?

Which description matches overdraft?

• A. A short term loan from a bank
• B. A long term loan
• C. A type of equity
• D. A liability that does not require repayment

Answer: (A)

An overdraft is a bank facility that lets a business withdraw more money than its current account balance up to an agreed limit, effectively providing short-term funds from the bank. Because it’s borrowing from the bank, it creates a liability that must be repaid (usually with interest and fees). It’s typically used for short-term cash flow needs and is not a long-term loan or equity. It isn’t a liability that never requires repayment—the business must bring the balance back into positive territory, repaying the overdrawn amount as funds are deposited or the overdraft limit is reduced.

An overdraft is a bank facility that lets a business withdraw more money than its current account balance up to an agreed limit, effectively providing short-term funds from the bank. Because it’s borrowing from the bank, it creates a liability that must be repaid (usually with interest and fees). It’s typically used for short-term cash flow needs and is not a long-term loan or equity. It isn’t a liability that never requires repayment—the business must bring the balance back into positive territory, repaying the overdrawn amount as funds are deposited or the overdraft limit is reduced.