what is cash credit from bank and its treatement in account
3 Replies
CA.G.Muguntha Narayanan
(Internal Auditor at TVS Motors)
(2195 Points)
Replied 23 January 2010
hi nayana,
cash credit will be shown as liabilities. as and wen payment s made, the amount gets reduced
CA Amit Kumar
(C.A., CWA Final)
(251 Points)
Replied 23 January 2010
In the case of Cash Credit, a proper limit is sanctioned which normally is a certain percentage of the value of the commodities/debts pledged by the account holder with the Bank. Overdraft, on the other hand, is allowed against a host of other securities including financial instruments like shares, units of mutual funds, surrender value of LIC policy and debentures etc. Some overdrafts are even granted against the perceived "worth" of an individual. Such overdrafts are called clean overdrafts.
CA Amit Kumar
(C.A., CWA Final)
(251 Points)
Replied 23 January 2010
Cash credit works in a manner that is very similar to that of a line of credit. The difference is that cash credit establishes a cash account with the lender institution that can be drawn upon by the debtor. This is different from a conventional loan, in that the debtor does not have to receive the entire amount of the loan at one time. Cash credit is also different from a line of credit, as the amount of resources extended are pre-approved and the repayment schedule is the same whether the debtor is actively using the cash credit or not.
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