A positive or favorable balance in the cash book indicates that
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Answer: B. Debit balance of cash book
Explanation
A positive cash book balance signifies that the business holds more cash receipts than it has paid out. In accounting, an increase in cash is recorded as a debit entry in the asset account. Thus, a favorable cash position is always represented by a debit balance. The cash book operates as a ledger account where increases in assets are debited and decreases are credited. Cash is a current asset with a natural debit balance. A positive balance means the company has spendable funds available.
Monitoring cash debit balances allows management to assess short-term liquidity and solvency. It ensures the business can pay immediate obligations without relying on debt. Favorable balances indicate healthy operational cash generation. A credit balance in the cash book indicates an overdraft rather than a positive balance. Option D refers to an adjusted balance, which is just a step in reconciliation. Option A misstates the normal balance type for positive cash.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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