Bank Reconciliation Involving an Overdraft

Every rule above assumes the starting balance is a normal, favourable (debit) Cash Book balance or credit Pass Book balance. When the firm's Cash Book shows a bank OVERDRAFT (a credit balance) instead, the safest and clearest approach is not to memorise a third table of reversed signs, but to reason from first principles, working out what each item does to the actual amount owed:

An overdraft is a NEGATIVE balance from the firm's point of view (a liability), so it is often written as a negative number, or explicitly labelled 'Overdraft' / '(Dr)' as per the Pass Book. Any item that would ADD to a normal favourable balance still increases the (negative) figure — i.e., it makes the overdraft SMALLER — and any item that would SUBTRACT from a normal favourable balance still decreases the figure — i.e., it makes the overdraft LARGER. Working through the arithmetic on the actual signed number (treating the overdraft as a negative figure throughout the statement, and applying exactly the same Add/Subtract table as before) always gives the correct answer, and is safer than trying to recall a separately reversed rule just for overdraft cases.