Theory question 104
Petty Cash(a) Outline three reasons for which a cheque would be dishonoured.
(b) Explain the following terms: (i) petty cash float; (ii) contra entries; (iii) imprest system.
(c) State three advantages of keeping petty cash book using imprest system.
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(a) Any three: insufficient funds in the drawer's account; signature missing or differs from specimen; cheque not dated, post-dated or stale; amount in words and figures differ; unendorsed alteration; payment stopped by the drawer; drawer's account closed, dead or bankrupt.
(b)(i) Petty cash float: the fixed sum given to the petty cashier at the start of a period for small payments.
(ii) Contra entries: transactions with both the debit and the credit in the cash book, e.g. cash paid into the bank or cash withdrawn for office use, marked 'C'.
(iii) Imprest system: the petty cashier starts each period with a fixed float and is refunded exactly what was spent, restoring the float.
(c) Any three: easy control of petty cash – balance can be checked at any time; reduces fraud and misuse; frees the chief cashier from small payments; trains junior staff; analysis columns give totals for posting; spending is limited to the float.
Reasons for dishonour, three definitions, then benefits of the imprest system.