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CA Intermediate · Financial Management and Strategic Management · Treasury and Cash Management

In the context of treasury management, which of the following is the primary purpose of a 'zero balance account' (ZBA) arrangement used by a corporate treasury?

A zero balance account is used to sweep surplus funds from collection or disbursement accounts into a central master account so that the sub-account ends each day at nil. This centralises liquidity, reduces idle cash, and improves control over funds across units or subsidiaries.

  1. ATo keep each subsidiary's collection account at a fixed high balance for earning interest
  2. BTo sweep surplus funds from collection or disbursement accounts into a central account so that the account balance stays at nil at the end of the dayCorrect
  3. CTo avoid paying any bank charges on the current accounts
  4. DTo prevent any cheques from being issued during the day

Explanation

A zero balance account is a sub-account whose balance is automatically brought to nil at day end by transferring funds to or from a master account. This centralises cash and reduces idle balances. The option about keeping high balances is the opposite of the purpose.

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