Final answer:
Petty cash is a small amount of liquid cash that businesses keep on hand for small, everyday expenses. It is used for speedy transactions that are too minor to write checks for. The liquidity of petty cash makes it convenient for these small, immediate business purchases.
Step-by-step explanation:
The term petty cash refers to option (B): Cash set aside to purchase items needed for business when a check is not available. Petty cash is a small amount of liquid cash that a company retains to cover small, everyday expenses. Instead of writing checks for small amounts, which can be cumbersome and inefficient, businesses use petty cash for expenditures such as office supplies, minor repairs, or postage. This system allows for easier and quicker transactions for incidental purchases. The liquidity of petty cash makes it a readily available resource for minor business-related expenses.
Additionally, to answer part 4 of your question regarding the classification of various financial items into M1 and M2:
- a. Your $5,000 line of credit on your Bank of America card - Neither M1 nor M2
- b. $50 dollars worth of traveler's checks you have not used yet - M1
- c. $1 in quarters in your pocket - M1
- d. $1200 in your checking account - M1
- e. $2000 you have in a money market account - M2