What is the normal balance of Reserve Fund Account?

Correct answer: Credit balance

The direct answer is Option A: Credit balance. A Reserve Fund is created by setting aside a part of profit. Profit increases the owners’ claim and is recorded on the credit side, so the reserve normally has a credit balance. When the reserve is distributed or closed during reconstitution, the Reserve Fund Account is debited and the old partners’ capital or current accounts are credited in the old profit-sharing ratio. Option A is correct because it identifies the normal accounting balance. Option B is wrong because a debit balance usually represents an asset, expense, loss, or deficiency, not a reserve created from profit. Option C is wrong because a reserve is an accounting balance, not cash itself; the cash may have been used elsewhere. Option D is wrong because the reserve does have a balance while it exists. Memory cue: profits and reserves normally carry credit balances; expenses normally carry debit balances.