Multiple Choice
Why is the Cash account, rather than the Petty Cash account, credited when a petty cash fund is replenished?
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6. Internal Controls and Reporting Cash
Petty Cash
Multiple Choice
Which term best describes an amount of cash kept on hand and used for making small payments?
A
Accounts receivable
B
Petty cash
C
Cash equivalents
D
Imprest fund
Verified step by step guidance1
Understand the concept of 'petty cash': Petty cash refers to a small amount of cash kept on hand by a business to cover minor expenses or small payments, such as office supplies or employee reimbursements.
Review the other terms provided in the options: 'Accounts receivable' refers to money owed to a company by its customers for goods or services provided on credit. 'Cash equivalents' are short-term, highly liquid investments that can be quickly converted into cash. 'Imprest fund' is a system used to manage petty cash, where a fixed amount is maintained and replenished as needed.
Compare the definitions: The term 'petty cash' specifically matches the description of cash kept on hand for small payments, while the other terms do not fit this purpose.
Recognize the correct answer: Based on the definitions, 'petty cash' is the term that best describes the scenario outlined in the question.
Apply this understanding to similar problems: When encountering questions about small cash reserves for minor expenses, remember that 'petty cash' is the appropriate term.
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