## Cash Credit Facility: Classification and Schedule III Disclosures

Cash credit (CC) and overdraft (OD) facilities are the most common forms of working capital financing provided by banks to businesses.

### What Is a Cash Credit Facility?

A revolving credit facility extended by a bank to meet day-to-day working capital needs
Repayable on demand by the bank
Secured by:
Primary security: Current assets (stock, debtors)
Collateral security: Fixed assets (e.g., director's property, factory building)
Often supported by personal guarantees of directors/promoters

### Balance Sheet Classification

Since cash credit/overdraft facilities are repayable on demand, they are classified as:

> Short-Term Borrowings under Current Liabilities (Schedule III, Part I)

### Schedule III Disclosure Requirements

For CC/OD facilities, the following must be disclosed:

1. Nature of borrowing: Cash Credit / Overdraft

2. Name of the lender (bank)

3. Amount outstanding at balance sheet date

4. Security details:

Primary security: nature of current assets pledged
Collateral security: details of immoveable property mortgaged

5. Guarantee details: Personal guarantees given by directors/promoters

6. Terms of repayment: Nature (repayable on demand)

7. Rate of interest

### Key Point for Audit

The auditor should verify that the CC/OD balance per bank statement is reconciled with the books of account. Since the account statement shows a debit balance, this represents money borrowed by the entity (liability to the bank).

Worked example

### Example 1

Q (based on Q28): Droma Shoes Pvt. Ltd. has a CC facility of ₹2 crores (repayable on demand) secured by current assets and director's residential property. Outstanding balance as at 31.03.2023 is ₹1.85 crores. How is this classified and what disclosures are needed?

Classification: ₹1.85 crores is classified as Short-Term Borrowings under Current Liabilities in the balance sheet (Schedule III, Part I) — because the facility is repayable on demand.

Schedule III Disclosures:

Nature: Cash Credit facility
Lender: [Name of bank]
Amount outstanding: ₹1.85 crores
Primary security: Current assets of Droma Shoes Pvt. Ltd.
Collateral security: Residential property of [director's name]
Guarantee: Personal guarantee of directors in favour of the bank
Terms: Repayable on demand
Interest rate: [as per sanction letter]

⚠️ Common exam mistakes

Classifying CC/OD as long-term borrowings — since it is repayable on demand, it is always short-term regardless of how long it has been running
Not disclosing collateral security (director's property) separately — both primary and collateral security must be disclosed
Forgetting to disclose director guarantees — personal guarantees are a key Schedule III disclosure element
Confusing a debit balance on bank statement (money borrowed by company = liability) with a credit balance (positive bank balance = asset)

Reference:

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Cash Credit Facility – Classification and Schedule III Disclosure

Worked example

⚠️ Common exam mistakes