Favourable balance as per Pass Book means:

Question

Accepted Answer

The correct option is 4:
The Pass Book, or bank statement, is fundamentally a copy of the customer's ledger account maintained in the bank's books. When a customer deposits money, the bank views this as a liability because it is money the bank owes back to the customer upon demand. Under the rules of double-entry accounting, an increase in a liability account is recorded with a **credit** entry. Therefore, a **Credit Balance in the Pass Book** signifies that the bank's liability to the customer is positive—meaning the customer has money deposited in the bank—which is always considered a **Favourable Balance**.

The incorrect option is 1:
A **Debit Balance in Cash Book** represents the normal and **favourable balance** from the perspective of the business owner. In the Cash Book, the company's cash is an asset, and the rule for assets is "Debit what comes in." Therefore, a debit balance indicates that cash receipts (inflow, debit side) exceed cash payments (outflow, credit side), showing a positive cash position. Although it is also a favourable balance, the question specifically asks for the terminology *as per the Pass Book*.

The incorrect option is 2:
A **Debit Balance in Pass Book** is the antithesis of a favourable balance. Since the Pass Book is the bank's record, a debit entry reduces the bank's liability to the customer. When the total debits exceed the total credits in the Pass Book, it means the customer has withdrawn more money than they have deposited. This condition is known as a bank **Overdraft**, which is an **unfavourable balance** because the customer owes money to the bank.

The incorrect option is 3:
A **Credit Balance in Cash Book** is the counterpart of an unfavourable Pass Book balance. In the Cash Book, payments (cash outflow) are recorded on the credit side, and receipts (cash inflow) are recorded on the debit side. When the credit side total exceeds the debit side total, it indicates that the business has spent more cash than it received. This situation is an **unfavourable balance** or an **Overdraft** from the business's perspective, not a favourable one.