Final answer:
Petty cash is a small fund kept on hand for minor expenses, operated on an imprest system where the fund's balance is replenished to a set amount after expenses are made.
Step-by-step explanation:
The petty cash system is operated on an imprest basis, meaning that a fixed amount of cash is reserved for minor business expenses. When the fund depletes to a certain level, it is replenished with the exact amount spent, thus maintaining the initial fixed balance. This system simplifies managing small, day-to-day transactions without having to withdraw money frequently from the bank. Petty cash serves as a convenient means of payment for small expenses, allowing businesses to carry out minor transactions that are impractical to process through more formal payment methods.