Favourable balance of Cashbook means
debit balance as per Cashbook
Understanding Favourable Balance in a Cashbook
In accounting, a 'favourable balance' typically refers to a positive position. For assets like cash or a bank account, a favourable balance means there is money available to the business. The Cashbook is a financial journal that contains all cash receipts and payments, including bank transactions.
Debit and Credit in the Cashbook
When a business receives cash or money is deposited into its bank account, it increases the asset (Cash or Bank). According to the rules of debit and credit, an increase in assets is debited. Therefore, receipts are recorded on the debit side of the Cashbook.
When a business makes a cash payment or withdraws money from its bank account, it decreases the asset (Cash or Bank). A decrease in assets is credited. Therefore, payments are recorded on the credit side of the Cashbook.
The balance of the Cashbook is calculated by subtracting the total credits from the total debits. If the total debits are more than the total credits, the Cashbook shows a debit balance. This debit balance represents the cash on hand or the balance in the bank account.
What a Favourable Balance Means for the Cashbook
A favourable balance in the context of a Cashbook means the business has a positive amount of cash or bank balance available. Based on the debit/credit rules for assets:
- A debit balance indicates that the total receipts (debits) were greater than the total payments (credits). This leaves a positive balance of cash or at the bank.
- A credit balance would indicate that the total payments (credits) were greater than the total receipts (debits). For a bank account, this usually means an overdraft, which is a liability and considered unfavourable. For cash, a credit balance is not possible as you cannot spend more cash than you have.
Therefore, a favourable balance as per Cashbook is when the debit side total is greater than the credit side total, resulting in a debit balance. This signifies that the business has funds available.
Analyzing the Options
Let's look at the given options:
- debit balance as per Cashbook: This means the debit column total is higher than the credit column total, indicating a positive cash/bank balance. This is favourable.
- debit balance of Passbook: The Passbook is maintained by the bank. From the bank's perspective, deposits are credits (money the bank owes you), and withdrawals are debits (money you owe the bank or have taken). A debit balance in the Passbook means the bank has debited your account more than credited, indicating an overdraft or negative balance from the bank's view, which is unfavourable for the customer.
- credit balance as per Cashbook: This would mean payments exceeded receipts, leading to an overdraft in the bank column (a liability), which is unfavourable.
- More than one of the above
- None of the above
Based on the analysis, a favourable balance as per Cashbook is indeed a debit balance.
Important Questions from Ledger & Cashbook
Ledger book is popularly known as
Which of the following statements are true?
1. When the amount deposited by the customer exceeds his withdrawal, it indicates an overdraft.
2. At the end of each year, the bank prepares the Bank Reconciliation Statement.
3. A Bank Reconciliation Statement is prepared with the help of Passbook and Cash Column of Cashbook.
4. Passbook always shows credit balance.
The statement containing various ledger balances on a particular date is known as
Passbook is the statement of account of the customer maintained by the
The statement which is prepared to reconcile the balance of Cashbook and Passbook is known as
