(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 a cheque would be dishonoured

1. Insufficient funds in the drawer's account to meet the cheque.
2. The cheque is post-dated or stale (out of date), that is, presented before its date or more than six months after it.
3. A difference or irregularity in signature, or the signature does not match the specimen held by the bank.
4. The words and figures differ, or the cheque has a material alteration that is not countersigned.
5. The account holder has stopped payment, died, or become bankrupt.

(Any three.)

(b) Explanation of terms

(i) Petty cash float: The fixed sum of money advanced to the petty cashier at the beginning of a period to meet small, routine cash payments, and which is restored to the same figure at the start of each new period under the imprest system.

(ii) Contra entries: Entries that appear on both the debit and credit sides of the same cash book, representing transfers between cash and bank of the same business (for example, cash paid into the bank or cash withdrawn from the bank for office use). They are marked with the letter \(C\) in the folio column.

(iii) Imprest system: A method of operating the petty cash book in which the petty cashier is given a fixed float, spends it on small items, and is then reimbursed at the end of the period with exactly the amount spent, so that the opening balance is always the same fixed sum.

(c) Three advantages of keeping petty cash under the imprest system

1. It provides control over small (petty) expenditure, since spending cannot exceed the float.
2. It relieves the chief cashier of recording numerous small payments, allowing division of labour.
3. It makes it easy to detect errors and fraud, because the cash in hand plus vouchers must always equal the float.
4. It reduces the amount of cash exposed to loss or theft at any one time.

(Any three.)