Petty Cash Fund Accounting Quiz

18 Questions

What is the purpose of establishing a Petty Cash Fund?

To cover relatively small expenditures

According to the Imrest Fund System, how should all cash disbursements be made?

Through checks

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

What entry is made when there is an actual payment of expenses from the Petty Cash Fund?

No entry is made

When should the replenishment of a Petty Cash Fund take place?

Whenever the PCF account runs low

What is the purpose of indicating a buffer level for replenishments in a Petty Cash Fund?

To facilitate timely fund replenishment

What type of investments are considered cash equivalents?

Short-term investments acquired three months or less before maturity

How are short-term investments, which will mature within twelve months after the reporting date, classified?

As current assets

What is the classification of investments that mature beyond twelve months after the reporting period?

Non-current assets

What is the key characteristic that defines cash equivalents?

Readily convertible into cash

In the context of the text, what is the difference between cash equivalents and short-term investments?

Maturity period

Why are cash equivalents considered low-risk investments?

Readily convertible into cash and near maturity

What is the purpose of establishing a petty cash fund?

To have a centralized fund for minor expenses

In the context of the petty cash fund, what does 'replenishment checks' refer to?

Checks used to replenish the petty cash fund

What is the consequence if the petty cash fund was not replenished at year-end?

Risk of not having enough funds for expenses

What would be the effect on the financial statements if petty cash vouchers were lost and not recorded?

Overstated expenses and understated liabilities

What is the significance of an employee IOU in the context of a petty cash fund?

It indicates a need for additional funding

When examining a petty cash fund, what should be done with any discrepancies found between the actual amount and the recorded amount?

Take corrective actions to reconcile and adjust the fund

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

Test your knowledge on accounting for petty cash fund, including the imprest fund system and replenishment procedures. Learn about managing small expenditures and maintaining accurate records.

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