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Unfavourable bank balance means :
- a)Credit balance in Cash Book
- b)favorable balance in Cash Book
- c)Credit balance in Pass Book
- d)Favourable balance in Cash Book
Correct answer is option 'A'. Can you explain this answer?
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Unfavourable bank balance means :a)Credit balance in Cash Bookb)favora...
An unfavourable or negative balance means a credit balance in the cash book. This indicates that the account is overdrawn, meaning the account holder has taken out more money than they have in the bank, resulting in a credit balance. Therefore, "Unfavourable bank balance" refers to a credit balance in the cash book.
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Unfavourable bank balance means :a)Credit balance in Cash Bookb)favora...
Understanding Unfavourable Bank Balance
An unfavourable bank balance refers to a situation where a bank account has a negative balance, indicating that the account holder has overdrawn their account. This can be better understood through the following points:
1. Credit Balance in Cash Book
- A credit balance in the Cash Book suggests that the business has more payments recorded than receipts.
- This situation usually arises when expenses exceed income, leading to a deficit.
2. Favourable vs. Unfavourable Balance
- A favourable balance indicates that a business has more cash inflows than outflows, which is considered a healthy financial position.
- Conversely, an unfavourable balance denotes financial distress, as it indicates that the account holder owes money to the bank.
3. Credit Balance in Pass Book
- While the credit balance in a Pass Book refers to the bank's record of deposits, an unfavourable balance specifically implies that the Cash Book shows a negative figure.
- Therefore, a credit balance in the Pass Book does not necessarily imply an unfavourable situation.
4. Importance of Monitoring Cash Book
- Regularly checking the Cash Book helps businesses avoid unfavourable balances.
- Businesses can maintain liquidity and ensure they don’t overspend, which is crucial for financial health.
In summary, option 'A' is correct because an unfavourable bank balance is specifically represented by a credit balance in the Cash Book, signaling that the account holder has overdrawn their funds. Understanding this distinction is essential for effective financial management.
An unfavourable bank balance refers to a situation where a bank account has a negative balance, indicating that the account holder has overdrawn their account. This can be better understood through the following points:
1. Credit Balance in Cash Book
- A credit balance in the Cash Book suggests that the business has more payments recorded than receipts.
- This situation usually arises when expenses exceed income, leading to a deficit.
2. Favourable vs. Unfavourable Balance
- A favourable balance indicates that a business has more cash inflows than outflows, which is considered a healthy financial position.
- Conversely, an unfavourable balance denotes financial distress, as it indicates that the account holder owes money to the bank.
3. Credit Balance in Pass Book
- While the credit balance in a Pass Book refers to the bank's record of deposits, an unfavourable balance specifically implies that the Cash Book shows a negative figure.
- Therefore, a credit balance in the Pass Book does not necessarily imply an unfavourable situation.
4. Importance of Monitoring Cash Book
- Regularly checking the Cash Book helps businesses avoid unfavourable balances.
- Businesses can maintain liquidity and ensure they don’t overspend, which is crucial for financial health.
In summary, option 'A' is correct because an unfavourable bank balance is specifically represented by a credit balance in the Cash Book, signaling that the account holder has overdrawn their funds. Understanding this distinction is essential for effective financial management.
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Unfavourable bank balance means :a)Credit balance in Cash Bookb)favorable balance in Cash Bookc)Credit balance in Pass Bookd)Favourable balance in Cash BookCorrect answer is option 'A'. Can you explain this answer?
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