27 July 2016
cash credit account : it is a limit granted by the bank against working capital....(This appears on liability side Current Account : The business open current account with banks. (This appears on asset side Pledge: article/thing say gold or silver is pledged with bank....against that bank advances money to the person who has pledged
27 July 2016
I hope you know the concept of WORKING CAPITAL Cash credit limit is sanctioned by Bank against Working Capital. Normally 75% of the working capital. This is cash credit account.....say a business is having a NET working capital of 400,000. The bank may sanction a limit of 300,000 as cash credit........it operates as other bank accounts....
As against this.......let us say a person is having 100gms of gold.... Bank can give loan ..... around 13,000 per 10 gms of gold...In this case the gold will get deposited with the bank...This is pledging. Now tell what is your query
27 July 2016
working capital = current asset - current liabilities that i know. you have resolved my most of confusions thanks for that. please correct me if i'm wrong on the following point. in pledge account bank takes collateral security to sanction limit. while in cash credit account bank secures business assets (e.g. stock) to sanction limit.
27 July 2016
mostly yes...... in PLEDGE account, banks NORMALLY give term loan..LIMIT as such is not sanctioned.... in cash credit account, a limit is sanctioned which varies from month to month depending upon the drawing power.....(to continue the earlier example...let us say, next month the working capital becomes 375,000...the cash credit limit is 75% of 375,000.....
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