Review Petty Cash Quiz

What is the primary purpose of a petty cash fund?

• To make small immediate payments

• To manage employee salaries

• To handle large transactions

• To invest in stocks

Answer explanation

The primary purpose of a petty cash fund is to make small immediate payments for minor expenses, allowing for quick access to cash without the need for formal purchase orders or checks.

Who is typically responsible for managing the petty cash fund?

• The petty cash custodian

• The CEO

• The marketing manager

• The sales representative

Answer explanation

The petty cash custodian is responsible for managing the petty cash fund, overseeing its use, and ensuring proper documentation. Other roles like the CEO or managers typically do not handle petty cash directly.

What is the normal balance of a petty cash account?

• Credit

• Debit

• Neutral

• Variable

Answer explanation

The normal balance of a petty cash account is a debit. This is because petty cash is an asset account, and asset accounts typically have a debit balance.

When is a journal entry made for petty cash disbursements?

• Every week

• Only when the fund is replenished

• At the time of each payment

• At the end of each day

Answer explanation

A journal entry for petty cash disbursements is made only when the fund is replenished. This is because individual payments are typically tracked through receipts, and the overall fund is adjusted at replenishment.

What document is prepared for each petty cash disbursement?

• Invoice

• Bank statement

• Receipt

• Petty cash voucher

Answer explanation

A petty cash voucher is prepared for each petty cash disbursement to document the amount spent and the purpose of the expense. It serves as a record for tracking petty cash transactions.

What happens if the petty cash fund is larger than needed?

• The excess is used for bonuses

• The excess is deposited in the checking account

• The excess is invested

• The excess is given to employees

Answer explanation

If the petty cash fund is larger than needed, the excess is typically deposited back into the checking account to maintain proper cash flow and ensure funds are available for other expenses.

What account is used to balance discrepancies in petty cash?

• Cash Over and Short

• Inventory

• Accounts Receivable

• Sales Revenue

Answer explanation

The 'Cash Over and Short' account is used to record discrepancies in petty cash, allowing businesses to track any cash shortages or overages that occur during transactions.

What is the entry to increase the petty cash fund by $400?

• Debit Petty Cash, Credit Cash

• Debit Cash, Credit Petty Cash

• Debit Expenses, Credit Cash

• Debit Cash, Credit Expenses

Answer explanation

To increase the petty cash fund by $400, you debit Petty Cash to reflect the increase in assets and credit Cash to show the decrease in cash available. Thus, the correct entry is Debit Petty Cash, Credit Cash.

What is the term used for a petty cash fund that is replenished when low?

• Capital fund

• Revolving fund

• Imprest fund

• Reserve fund

Answer explanation

An imprest fund is a type of petty cash fund that is replenished to a fixed amount when it runs low, ensuring that there is always a set amount available for small expenses.

What should be done if the petty cash fund is too small?

• Decrease the fund size

• Replenish it every few days

• Close the fund

• Ignore the issue

Answer explanation

If the petty cash fund is too small, it is best to replenish it every few days to ensure there are sufficient funds for necessary expenses. Decreasing or closing the fund would not address the issue.