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Questions and Answers
What is the purpose of establishing a Petty Cash Fund?
What is the purpose of establishing a Petty Cash Fund?
- To cover relatively small expenditures (correct)
- To cover large expenditures
- To deposit all cash receipts intact
- To make all cash disbursements through checks only
According to the Imrest Fund System, how should all cash disbursements be made?
According to the Imrest Fund System, how should all cash disbursements be made?
- Through credit card payments
- Through checks (correct)
- Through cash withdrawals
- Through direct bank transfers
When are expenses recorded in the accounting books for a Petty Cash Fund?
When are expenses recorded in the accounting books for a Petty Cash Fund?
- When the fund is replenished or on the reporting date, whichever comes earlier (correct)
- When the fund runs low
- When the fund is fully utilized
- When the fund balance increases
What entry is made when there is an actual payment of expenses from the Petty Cash Fund?
What entry is made when there is an actual payment of expenses from the Petty Cash Fund?
When should the replenishment of a Petty Cash Fund take place?
When should the replenishment of a Petty Cash Fund take place?
What is the purpose of indicating a buffer level for replenishments in a Petty Cash Fund?
What is the purpose of indicating a buffer level for replenishments in a Petty Cash Fund?
What type of investments are considered cash equivalents?
What type of investments are considered cash equivalents?
How are short-term investments, which will mature within twelve months after the reporting date, classified?
How are short-term investments, which will mature within twelve months after the reporting date, classified?
What is the classification of investments that mature beyond twelve months after the reporting period?
What is the classification of investments that mature beyond twelve months after the reporting period?
What is the key characteristic that defines cash equivalents?
What is the key characteristic that defines cash equivalents?
In the context of the text, what is the difference between cash equivalents and short-term investments?
In the context of the text, what is the difference between cash equivalents and short-term investments?
Why are cash equivalents considered low-risk investments?
Why are cash equivalents considered low-risk investments?
What is the purpose of establishing a petty cash fund?
What is the purpose of establishing a petty cash fund?
In the context of the petty cash fund, what does 'replenishment checks' refer to?
In the context of the petty cash fund, what does 'replenishment checks' refer to?
What is the consequence if the petty cash fund was not replenished at year-end?
What is the consequence if the petty cash fund was not replenished at year-end?
What would be the effect on the financial statements if petty cash vouchers were lost and not recorded?
What would be the effect on the financial statements if petty cash vouchers were lost and not recorded?
What is the significance of an employee IOU in the context of a petty cash fund?
What is the significance of an employee IOU in the context of a petty cash fund?
When examining a petty cash fund, what should be done with any discrepancies found between the actual amount and the recorded amount?
When examining a petty cash fund, what should be done with any discrepancies found between the actual amount and the recorded amount?
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Study Notes
Petty Cash Fund
- A type of cash fund set aside to cover relatively small expenditures
- Imprest Fund System: all cash receipts must be deposited intact, and all cash disbursements must be done through checks
Characteristics of Petty Cash Fund
- Fund balance can increase or decrease depending on the circumstances
- Expenses are not recorded until the fund is replenished or it is already the reporting date, whichever comes earlier
- Replenishment of petty cash fund takes place whenever the PCF account runs low
Accounting for Petty Cash Fund
- Establishment of PCF: debit Petty Cash Fund, credit Cash in Bank
- Expenses are not recorded until replenishment
- Replenishment of petty cash fund: debit Expenses, credit Cash in Bank
- Adjustment of replenished expenses at the end of the accounting period: debit Expenses, credit PCF
Journal Entries for Petty Cash Fund
- Increase in PCF: debit PCF, credit Cash in Bank
- Decrease in PCF: debit Cash in Bank, credit PCF
Computation of Petty Cash Fund
- PCF Overage/Shortage: PCF per count - PCF per accountability (equal to PCF imprest balance)
- Formula to compute PCF per count: Coins and currencies + Petty cash vouchers + Replenishment checks + IOUs or advances to employees + Employee's NSF
Cash Equivalents
- Short-term and highly liquid investments that are readily convertible into cash
- Qualifications: acquired three months or less before their maturity, and present insignificant risk of changes in value due to changes in interest rates
Accounting for Cash Equivalents
- Investments acquired within three months before maturity are classified as cash equivalents
- Investments acquired beyond three months before maturity but will mature within twelve months after the reporting date are classified as short-term investments
- Investments that will mature beyond twelve months after the reporting period are classified as long-term investments
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