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Bank overdrafts occur when a bank honors disbursements in excess of funds on deposit in a reporting entity's account. Such a feature is commonly referred to as overdraft protection. Accordingly, bank overdrafts represent short-term loans from the bank and should be classified as debt on the balance sheet and financing cash flows in the statement of cash flows, as discussed in the non-authoritative guidance included in section 1300.15 of the AICPA Technical Questions and Answers.
Some reporting entities have executed contractual agreements that link numerous bank accounts within the same bank, or a group of banks. For example, multinational entities that maintain cash balances in numerous consolidated subsidiaries, in multiple currencies, in multiple countries sometimes enter into notional pooling arrangements to facilitate their worldwide treasury activities. Under a notional pooling arrangement, the balances of all bank accounts subject to the arrangement are combined into a single unit of account for purposes of determining the balance on deposit under the terms of the agreement. Accordingly, the bank accounts of certain subsidiaries in the notional pooling arrangement are allowed to be in an overdraft position if the bank accounts of other subsidiaries in the notional arrangement have aggregated deposit positions in excess of the aggregated overdraft accounts.
ASC 210, Balance Sheet, indicates that a reporting entity's cash account at a bank is not considered an amount owed to the reporting entity for purposes of determining whether a right of offset exists. Accordingly, the ASC 210 offset model cannot be utilized to offset a bank account in a deposit position against another bank account with the same bank that is in an overdraft position. Notwithstanding the guidance in ASC 210, some reporting entities have concluded that the contractual terms of their notional pooling arrangements preclude individual bank accounts within the arrangement from being considered separate accounts because contractually it functions as one account. In such circumstances, the reporting entity should aggregate all bank accounts that are subject to the notional pooling arrangement into a single balance on its balance sheet and to combine these balances when assessing if there is a bank overdraft. However, when a subsidiary that participates in the notional pooling arrangement prepares its financial statements on a standalone basis, the presentation of the subsidiary’s bank accounts should reflect the facts and circumstances of the individual subsidiary without consideration of its parent’s conclusions regarding the notional pooling arrangement at the consolidated level.

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