Question

Assertion (A): Cash deposited into Bank will not result in Flow of Cash or Cash Equivalents.

Reason (R): Cash deposited into Bank is movement between items of Cash.

In the context of the above two statements, which option is correct?

Options

• Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).

• Assertion (A) is correct, but Reason (R) is not correct.

• Assertion (A) is not correct, but Reason (R) is correct.

Answer 1

Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).

Explanation:

Assertion (A) is correct because depositing cash into a bank account does not result in an inflow or outflow of funds for the company; the total liquidity remains exactly the same. Reason (R) is also correct and accurately explains the assertion because both physical cash and bank balances are classified together as components of Cash and Cash Equivalents.