What type of balance does the General Reserve Account have?

Correct answer: Credit balance

General Reserve is an accumulated appropriation of profits. Since it represents an amount retained out of profits for strengthening the financial position of the firm or meeting future uncertainties, it normally appears on the liabilities and partners’ funds side with a credit balance. Therefore, option A is correct. When the reserve is distributed or closed on admission of a partner, the General Reserve Account is debited and the old partners’ capital or current accounts are credited in their old profit-sharing ratio. A debit balance would indicate a loss or debit item, not a reserve. Cash balance and loan balance describe asset or liability positions, not the normal nature of this account.