Explain precautionary balance

College Accounting (Book Only): A Career Approach
13th Edition
ISBN:9781337280570
Author:Scott, Cathy J.
Publisher:Scott, Cathy J.
Chapter6: Bank Accounts, Cash Funds, And Internal Controls
Section: Chapter Questions
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Explain precautionary balance

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Precautionary balance refers to the reserves kept by the firm or individual to meet any contingency. In real life, everyone does so much of planning for the cash management but sometimes due to unforeseen circumstances, some contingency arises such that if the balance is kept, it can be used at that point.

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