Create accounting heads of overdraft taken against FD

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This discussion explains how to set up accounting heads for an overdraft facility provided against a Fixed Deposit (FD). It clarifies that payments made from the overdraft account should be debited to the supplier and credited to the OD account. The balance in the OD account itself represents the utilised limit, eliminating the need for a separate tracking head.

frank

frank (Querist)

14 July 2021 I have an FD against which bank has given me OD facility of 90%
how do I pass the payments made against the OD account, will this affect the normal current account.
The bank will charge me interest only on the amount utilized.
Please help me in creating the heads of account in the books and its effects

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

14 July 2021 Debit the recipient
Credit bank OD.

CMA Poornima Madhava

CMA Poornima Madhava (Expert)

14 July 2021 A new OD account to be created in the books and all payments and receipts to be accounted using the OD account.

frank

frank (Querist)

15 July 2021 That is done, my query is I created the FD A/c where the amount is available, I created the OD A/c too. When I make the payment to supplier through OD A/c, I debit the supplier and credit OD A/c. The bank will only charge me interest on the amount I utilize, how do I track how much OD limit I used, do I need to create a separate head?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

15 July 2021 No need of separate account. The balance in OD account is you used.

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