Bank overdraft
In one sentenceA facility the bank allows the business to withdraw from its current account beyond its balance up to an agreed limit, at a financing cost on the amount used.
Simply put
When the account balance becomes negative, the business owes the bank that amount. So the negative balance is shown as a current liability, not as negative cash within assets.
It is a flexible solution for short cash gaps, but relying on it all year means the business needs longer-term financing or better collection.
Worked example
A store has an overdraft limit of 200,000 SAR and a balance of 60,000 SAR, then paid suppliers 150,000 SAR.
Balance before payment60,000
Paid to suppliers(150,000)
Remaining limit = 200,000 − 90,000110,000
Balance after payment = 60,000 − 150,000 (a liability of the store)(90,000) SAR
Don't confuse it with
Short-term loanA loan is a fixed amount received once and repaid on a schedule, while an overdraft moves with the account every day.