CB Banking and Cash Management 2 — Questions and Answers
Question 1: What is the primary characteristic of an imprest petty cash system?
- The petty cash fund is maintained at a fixed amount and replenished back to that level (Correct answer)
- The petty cash fund increases by a set amount each time it is replenished
- Petty cash can be used for any business expense regardless of size
- The petty cash fund is reconciled only at year-end
Correct answer: The petty cash fund is maintained at a fixed amount and replenished back to that level
Under the imprest system, petty cash is kept at a constant predetermined balance, and the fund is always replenished to restore it to exactly that fixed amount.
Question 2: When replenishing a petty cash fund, the correct journal entry is:
- Debit various expense accounts; credit cash (checking account) (Correct answer)
- Debit petty cash; credit various expense accounts
- Debit cash; credit petty cash
- Debit petty cash; credit accounts payable
Correct answer: Debit various expense accounts; credit cash (checking account)
To replenish petty cash, you debit the appropriate expense accounts for disbursements made and credit the checking account for the total replenishment amount.
Question 3: Which of the following represents the best internal control for handling cash receipts?
- Separating the duties of receiving cash from recording cash transactions (Correct answer)
- Having one trusted employee handle all cash functions for efficiency
- Depositing cash receipts weekly rather than daily
- Keeping cash in a locked drawer and reconciling it monthly
Correct answer: Separating the duties of receiving cash from recording cash transactions
Segregation of duties ensures no single person controls all aspects of a cash transaction, significantly reducing the risk of theft or undetected error.
Question 4: A petty cash voucher primarily serves as:
- Documentation authorizing and recording each petty cash disbursement (Correct answer)
- The journal entry used when replenishing the petty cash fund
- The bank reconciliation for the petty cash account
- Authorization for establishing or increasing the petty cash fund
Correct answer: Documentation authorizing and recording each petty cash disbursement
A petty cash voucher documents the purpose, amount, recipient, and authorization for each payment, providing the supporting evidence required for that disbursement.
Question 5: For proper internal control, bank reconciliations should be prepared by:
- An employee independent of cash handling and check-writing functions (Correct answer)
- The treasurer who oversees all cash management
- The accounts receivable clerk who posts customer payments
- Any available employee to ensure timely completion
Correct answer: An employee independent of cash handling and check-writing functions
Bank reconciliations must be performed by someone independent of cash-handling and recording duties to prevent the concealment of errors or fraud.
Question 6: What does a 'voided check' mean in bookkeeping?
- A check that has been intentionally canceled and should not be honored for payment (Correct answer)
- A check returned by the bank due to insufficient funds
- A check that has successfully cleared the bank
- A check written payable to cash for zero dollars
Correct answer: A check that has been intentionally canceled and should not be honored for payment
A voided check has been deliberately marked 'VOID,' rendering it invalid and ensuring the bank will not accept it for payment.
Question 7: The Cash Over and Short account is used to record:
- Small differences between actual cash on hand and the recorded cash balance (Correct answer)
- Excess cash deposited into the petty cash fund above its established level
- Customer overpayments on outstanding invoices
- Interest earned on the company's checking account
Correct answer: Small differences between actual cash on hand and the recorded cash balance
Cash Over and Short captures minor discrepancies between the actual cash counted and the amount that the records indicate should be present.
CB Banking and Cash Management 2
What is the primary characteristic of an imprest petty cash system?