(a) Outline three reasons for which a cheque would be dishonored. (b) Explain the following terms: i. petty cash float. ii. contra entries. iii. imprest sys...

Answer Details

(a) Three reasons for which a cheque would be dishonored are:

1. Insufficient funds: If the account of the person who wrote the cheque does not have enough funds to cover the amount of the cheque, it will be dishonored.
2. Irregular signature: If the signature on the cheque does not match the signature the bank has on record for the account holder, it will be dishonored.
3. Stale cheque: If the cheque is presented to the bank after a certain period of time (usually 6 months), it will be dishonored.

(b)

i. Petty cash float: Petty cash float refers to a small amount of cash that is kept on hand by a business to cover small expenses, such as office supplies or minor repairs. This cash is usually held by a designated employee who is responsible for making small purchases on behalf of the business.

ii. Contra entries: Contra entries refer to entries made in a business's accounting system that offset each other. For example, if a business owes money to another business, and that other business also owes money to the first business, the two amounts can be offset against each other, resulting in a contra entry.

iii. Imprest system: The imprest system is a method of managing petty cash that involves maintaining a fixed amount of cash on hand, and then replenishing that amount as needed. Under this system, a designated employee is given a fixed amount of petty cash at the start of each period (usually a week or a month). This employee then makes small purchases on behalf of the business using this cash, and at the end of the period, any remaining cash is counted and reconciled, and the employee is reimbursed for any expenses made.

(c) Three advantages of keeping a petty cash book using the imprest system are:

1. Control: The imprest system provides a high degree of control over petty cash expenditures. By maintaining a fixed amount of cash on hand and carefully tracking all petty cash transactions, businesses can ensure that petty cash is being used for legitimate business expenses and that there is no misuse or theft of funds.
2. Efficiency: The imprest system is a very efficient way to manage petty cash. By maintaining a fixed amount of cash on hand and reimbursing employees for expenses on a regular basis, businesses can avoid the need for frequent trips to the bank and can save time and effort.
3. Accuracy: The imprest system promotes accuracy in accounting. By carefully tracking all petty cash transactions and reconciling the petty cash account on a regular basis, businesses can ensure that their accounting records are accurate and up-to-date, which can help prevent errors and discrepancies in financial reporting.