What is a bank overdraft?
A bank overdraft occurs when the bank account becomes negative and the business has effectively borrowed from the bank. This happens when withdrawals exceed deposits in the account.
In terms of accounting treatment, an overdraft is shown in the cash book as a credit balance. In the bank statement or passbook, it is indicated by "Dr." or "OD" following the balance and is called a debit balance as per passbook. An overdraft is always treated as a negative figure in the bank reconciliation statement.
Explanation
This answer directly draws from Section 5.2.1(b) 'Dealing with overdrafts' which defines overdrafts as situations where the bank account becomes negative and businesses have effectively borrowed from the bank. The context also explains the accounting presentation - credit balance in cash book, debit balance (marked Dr. or OD) in passbook, and treatment as negative figure in BRS. The mention of withdrawals exceeding deposits comes from the later passage explaining debit balance in passbook.