Question

When counting petty cash, the cash on hand plus the amount of the receipts should equal the predetermined amount for petty cash. How often should you check the cash on hand against the receipts to be sure petty cash is correct?

a) Monthly
b) Quarterly
c) Annually
d) Weekly

Answer 1

Petty cash should be reconciled weekly to ensure financial accuracy and manage cash flow effectively. Regular checks help maintain transparency and avoid overdrafts, reflecting the need for liquidity in financial management.

Step-by-step explanation:

When handling petty cash, it is recommended to reconcile the cash on hand with the receipts on a regular basis to detect any discrepancies and maintain accuracy. For many businesses, a weekly check is an effective frequency. This helps in managing money effectively, ensuring that the cash flow remains transparent and helps in avoiding mistakes such as overdrafts.

Moreover, given the high liquidity of cash as it is an immediate form of money unlike checks or savings accounts which require additional steps to access the funds, the swift reconciliation of petty cash is key in financial management. Regularly balancing your checkbook reflects the concept of liquidity and immediately available funds. The practice of tracking expenses weekly through receipts and cash on hand is integral in providing a clear understanding of one's financial position.