Tally ships with a group called Bank OD A/c, and it sits under Loans (Liability), not under Current Assets. That placement is the whole answer, and it is ignored constantly.
An overdraft or cash credit facility is money the bank has lent. The account behaves like a bank account, arrives as a bank statement, and is usually opened at the same branch as the current account, so it gets filed alongside one. Under Bank Accounts it reads as an asset. A client sitting forty lakh into a fifty lakh CC limit then shows negative forty lakh of cash rather than forty lakh of borrowing, and the current ratio computed from that balance sheet is not merely optimistic, it is inverted.
What the statement tells you, if you read the balance
You do not need to ask the client. The statement says which it is.
A current account in normal use carries a credit balance from the bank's point of view, which is a debit balance in your books: the bank owes the customer. An OD or CC account spends most of its life the other way round, and the statement usually prints the balance with a "Dr" suffix or in brackets to say so.
That sign is the identifying feature. An account whose running balance is negative for most of the year, recovers when receipts land, and dips again, is a borrowing facility being used as intended. An account that is briefly overdrawn once because a cheque cleared early is a current account with an incident.
Greenote reads this from the statement rather than putting a checkbox in front of you, which also removes a class of sign error that used to come from guessing. Reading direction from the running balance is the same principle applied to individual rows.
OD against CC, and why the distinction matters
They are treated the same way in the balance sheet and differently in everything else.
An overdraft is a facility on a current account, usually secured against property or a deposit, with a limit set when the facility is sanctioned. A cash credit facility is secured against current assets, specifically stock and receivables, and the limit is recalculated periodically from a stock statement the client submits to the bank.
That difference has an audit consequence. A CC account implies a drawing power calculation, monthly stock statements, and a limit that should move as the underlying assets move. If the client has a CC facility and no stock statements exist, that is a finding. If the drawing power has been exceeded, the interest rate on the excess is usually penal and the statement will show it.
Interest, charges and what they are evidence of
The interest debited monthly to an OD or CC account is a finance cost, not a bank charge, and the two belong in different heads.
Bank charges are transaction fees: cheque return charges, NEFT fees, statement charges, locker rent. They go to an indirect expense head. Interest on borrowing is the cost of finance and, for a business claiming it, is the figure that has to reconcile with the interest certificate the bank issues at year end.
The certificate is the control. Total the interest debits in the statement for the year and compare them with the bank's certificate. A gap usually means either a month was missed in the import, or penal interest was debited and booked as charges. Both are worth finding before the accounts are signed. Which head bank charges belong under covers the other side of that split.
The reclassification, and what it moves
Moving a ledger from Bank Accounts to Bank OD A/c changes no voucher, no amount and no reconciliation. It changes where the balance appears, and that is the entire point.
After the move, the facility appears under Loans (Liability) at the amount drawn. Current assets drop by that figure and current liabilities rise by it, so the current ratio moves by roughly twice the balance. On a client whose CC utilisation is significant, a ratio that looked comfortable can turn.
That is not a cosmetic change. It is the number a lender reads, the number a ratio-based covenant tests against, and the number that appears in the financial statements you are signing. It is also trivially easy to get right, which is what makes leaving it wrong hard to defend.
Conclusion
The test takes one look at the statement. If the running balance spends the year negative, the account is a borrowing, and it belongs under Bank OD A/c whatever it is called at the branch.
Everything downstream follows from that one placement: the balance sheet classification, the interest treatment, the ratio, and whether the stock statements a CC facility implies actually exist. Greenote detects OD and CC accounts from the statement itself, so the classification is made from evidence rather than from what the ledger happened to be called. See what it reads.
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