Increase in Bank overdraft of ₹50,000 will be shown as :

The correct answer is Option (1) → Inflow of finance activities

A bank overdraft is a short-term borrowing. Cash raised by borrowing, short-term or long-term, is a financing activity. An increase of ₹50,000 in the overdraft means the firm has borrowed ₹50,000 more, so it is a cash inflow from financing activities. The book classifies bank overdraft as a financing activity in its Test your Understanding below (item 29).

Option (1) Inflow of finance activities — Correct.

Option (2) Outflow of finance activities — Incorrect. An outflow would arise if the overdraft were reduced (repaid).

Option (3) Inflow of investing activities — Incorrect. Investing activities deal with long-term assets and investments, not borrowings.

Option (4) Added as increase in current liabilities in operating activities — Incorrect. Only operating current liabilities (such as trade payables) are adjusted there; a bank overdraft is a borrowing.