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CMA Foundation · Fundamentals of Financial and Cost Accounting · Cash Book, Bank Book, Petty Cash Book, Bank Reconciliation Statement

A trader's cash book (bank column) shows a debit balance of ₹40,000. Which of the following correctly describes this balance?

A debit balance in the bank column of the cash book means the trader has a positive balance with the bank, which is an asset. Only a credit balance would show an overdraft or a liability to the bank.

  1. AThe trader has an overdraft with the bank
  2. BThe trader has a positive balance with the bankCorrect
  3. CThe bank has a debit balance in its own books for the trader
  4. DThe trader owes ₹40,000 to the bank

Explanation

In the trader's cash book, a debit balance in the bank column means money is available in the bank, so it is an asset. A credit balance would indicate an overdraft. The statement that the trader owes the bank describes a credit balance, not a debit one.

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