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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 statement correctly describes this position?

A debit balance in the bank column of the cash book means the trader has ₹40,000 deposited with the bank according to his own records. It is an asset. An overdraft would instead appear as a credit balance in the cash book.

  1. AThe trader has a bank overdraft of ₹40,000
  2. BThe trader has a positive balance of ₹40,000 with the bank as per his own booksCorrect
  3. CThe bank has a debit balance of ₹40,000 in its 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 the bank has money of the trader, so it is an asset. An overdraft would appear as a credit balance. Options A and D confuse the trader's books with an overdraft position.

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