Cash Credit

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Querist : Anonymous

Querist : Anonymous (Querist)

31 July 2010 Dear Sir,
if receipts & payments month wise are as below:
1st month: rcpts 10000 & pymts 8000
2nd: 15000 & 21000

is the excess requirement of 4000 in 2nd month known as cash credit arrangement from bank?
if not, pls give an example.

thank you.

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)

31 July 2010 It is called overdraft arrangement.

Following definition will make it clear---

Cash credit Account
This account is the primary method in which Banks lend money against the security of commodities and debt. It runs like a current account except that the money that can be withdrawn from this account is not restricted to the amount deposited in the account. Instead, the account holder is permitted to withdraw a certain sum called "limit" or "credit facility" in excess of the amount deposited in the account.
Cash Credits are, in theory, payable on demand. These are, therefore, counter part of demand deposits of the Bank.

Overdraft
The word overdraft means the act of overdrawing from a Bank account. In other words, the account holder withdraws more money from a Bank Account than has been deposited in it.

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Querist : Anonymous

Querist : Anonymous (Querist)

31 July 2010 if I have a current a/c in a bank can the cash credit be availed using the same a/c cheques or any separate arrangement is made?

Querist : Anonymous

Querist : Anonymous (Querist)

31 July 2010 one more thing.
CC is given against commodity & debt....
commodity means those traded on MCX or stock in hand?
debt here refers to debtors?

thanks!!

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)

31 July 2010 separate arrangements for Current a/c and cash credit account is required.

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)

31 July 2010 Yes Debt refers to debtors.
Commodity means stock in trade.
Usually CC limit is given as 75% of total paid up stock+Debtors less than 3 months old.

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