Question

Review the following statements and select the ones which accurately describe a Petty Cash fund. Select all answers which apply. a.It is used to avoid the time and cost of writing checks for small amounts. b.It is an account used to record small sales amounts. c.It is established to pay for small payments like postage, shipping fees, etc. d.It is an expense reported on the income statement. e.It is an asset reported on the balance sheet.

Answer 1

Answer:

The correct options are:

• A. It is used to avoid the time and cost of writing checks for small amounts.
• C. It is established to pay for small payments like postage, shipping fees, etc.
• E. It is an asset reported on the balance sheet.

Explanation:

A Petty Cash Fund is a small amount of money that is kept on hand to be used in covering for the making of purchases that are too small to bother to write a check. Money from the petty cash fund can be used to pay for minor expenses such as postage, cab fares, shipping fees or office supplies.

Petty cash fund appears in the balance sheet on the current assets section. This is because line items in the balance sheet are sorted according to their order of liquidity. Since petty cash is highly liquid, it always appears near the top of the balance sheet.