Correct Option: D. Cash balance decrease and bank balance increase Explanation of the Correct Answer: When cash is paid into the bank, it means that physical cash is being deposited into a bank account. This transaction affects two accounts in the accounting records: the cash account and the bank account.

1. Cash Account: This account represents the physical cash that a business has on hand. When cash is deposited into the bank, the amount of cash the business has on hand decreases because that cash is no longer physically with the business.
2. Bank Account: This account represents the funds that the business has in its bank account. When cash is deposited, the amount in the bank account increases because the business is adding funds to its bank balance.

Thus, the transaction can be summarized as follows: - Cash Account: Decrease (because cash is taken out of the business) - Bank Account: Increase (because cash is added to the bank) This is why the correct answer is D: Cash balance decreases and bank balance increases. Why the Other Options are Incorrect:

• Option A: Bank balance decrease and cash balance increase
• This option is incorrect because it suggests that the bank balance decreases when cash is deposited. In reality, depositing cash increases the bank balance, not decreases it. Additionally, it incorrectly states that the cash balance increases, which contradicts the nature of the transaction.
• Option B: Bank balance decrease and cash balance decrease
• This option is also incorrect. While it correctly states that the cash balance decreases (since cash is being deposited), it incorrectly states that the bank balance decreases. The bank balance should increase, not decrease, when cash is deposited.
• Option C: Cash balance increase and bank balance increase
• This option is incorrect because it states that the cash balance increases. In fact, the cash balance decreases when cash is deposited into the bank. While it correctly states that the bank balance increases, the first part of the statement makes the entire option incorrect.

Summary of Key Points:

• When cash is deposited into the bank, the cash balance decreases because the business no longer has that cash on hand.
• The bank balance increases because the deposited cash is now part of the business's bank account.
• This transaction reflects a transfer of cash from the business's physical possession to its bank account, impacting both accounts accordingly.
• Understanding the flow of cash in and out of accounts is crucial for accurate financial reporting and management.

Revision Summary:

• Cash deposited into the bank decreases the cash balance and increases the bank balance.
• The transaction affects both the cash account and the bank account.
• Always remember that depositing cash means the business has less cash on hand but more in the bank.
• Review the definitions of cash and bank accounts to avoid confusion in similar transactions.