Question

General Reserve Account always shows:

• A. Debit Balance
• B. Credit Balance
• C. Both (A) and (B)
• D. None of these

Hint:

Remember: All reserves (general or specific) are part of liabilities; therefore, they always have a credit balance.

Answer 1

The Correct Option is B

Step 1: Nature of General Reserve.
General Reserve is an appropriation of profit created out of surplus earnings of a business. It is part of reserves and surplus shown under “Liabilities” in the balance sheet.
Step 2: Accounting treatment.
Reserves are created by transferring a portion of net profits. Since profits belong to the owners, reserves are a liability of the firm towards its partners/shareholders. Hence, they always carry a credit balance.
Step 3: Eliminate options.
- Option (A) Debit Balance $\Rightarrow$ Wrong, because reserves cannot be debit.
- Option (C) Both debit and credit $\Rightarrow$ Wrong, reserves are only credit.
- Option (D) None of these $\Rightarrow$ Wrong, because (B) is correct.
Step 4: Conclude.
Thus, General Reserve Account always shows a credit balance.
Final Answer: \[ \boxed{\text{Credit Balance}} \]