Better Days Ahead, a charitable organization, has a standing agreement with Firs

Question

Better Days Ahead, a charitable organization, has a standing agreement with First National Bank. The agreement allows Better Days Ahead to overdraw its cash balance at the bank when donations are running low. In the past, Better Days Ahead managed funds wisely and rarely used this privilege. Jacob Henson has recently become the manager of Better Days. To expand operations, Henson acquired office equipment and spent large amounts on fundraising. During Henson's tenure, Better Days Ahead has maintained a negative bank balance of approximately $10,000.

What accounts do you see being affected as a result of Jacob Henson's actions? Which accounts do you think would experience a debit? Which accounts do you think would experience a credit? How would a negative bank balance be listed in a Trial Balance? Is there an ethical issue in this situation? Do you approve or disapprove of Jason Henson's management of Better Days Ahead's funds?
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Explanation / Answer

When you hear your banker say, "I'll credit your checking account," it means the transaction will increase your checking account balance. Conversely, if your bank debits your account (e.g., takes a monthly service charge from your account) your checking account balance decreases.

If you are new to the study of debits and credits in accounting, this may seem puzzling. After all, you learned that debiting the Cash account in the general ledger increases its balance, yet your bank says it iscrediting your checking account to increase its balance. Similarly, you learned that crediting the Cash account in the general ledger reduces its balance, yet your bank says it is debiting your checking account to reduce its balance.

Although the above may seem contradictory, we will illustrate below that a bank's treatment of debits and credits is indeed consistent with the basic accounting principles you learned. Let's look at three transactions and consider the resultant journal entries from both the bank's perspective and the company's perspective.

1.Hence the banks Accounts get Credited.

2.My transaction/Bank book gets Debited

If an account have a negative balance, it is represented as a negative number in the appropriate column. For example, if the company is $10000 into the overdraft in the checking account the balance would be entered as -$500 or ($500) in the debit column. The $500 negative balance is NOT listed in the credit column.

Yes there is an ethical issue,the banks should not lend on a savings account,since negative balance is not accepted money is put in opposite coloumn bearing negative,which leads to lots of unfair transactions

I'll not approve such transactions in short run,but in long run since it has a fair records may be i should

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