You Took a Job as the New Accountant for Pauline

Essay

You took a job as the new accountant for Pauline Company, a small company with significant overdrafts in a checking account. The previous accountant prepared the financial statements for last period and classified the overdrafts as a vendor accounts payable. He also reported the overdraft as a cash inflow in the operating section of the statement of cash flows.
Briefly discuss the issues surrounding this treatment of the overdraft.