26. Which of the following statements is correct?

A. The bank balance is always a current asset, whether it is “in credit” on the statement or “overdrawn”

B. If the bank account is “in credit” on the statement then it must be a current asset

C. If the bank account is “overdrawn” on the statement then it is a current asset

D. If the bank account is “in credit” on the statement then it is a liability

Answer : B

Double entry terminology is the opposite of the bank statement, because the bank views it from their perspective. So when your statement says “in credit”, the T-account will show a debit balance – this makes it an ASSET, as it is YOUR money that is sitting at the bank. If it is “overdrawn” on the statement, it would be a credit in the T-account and then you owe the bank the money, and it is a liability. ALWAYS current, no matter how long you hold the overdraft, because the terms could be changed and the overdraft cancelled by the bank!