What is the purpose of a petty cash fund?

What is the purpose of a petty cash fund?

• A. To invest in equipment
• B. To make relatively low-cost purchases
• C. To pay salaries
• D. To manage payroll

Answer: (B)

Petty cash is a small on-hand fund used to handle everyday, minor expenses quickly without routing every little purchase through the formal purchasing system. The point is to keep buying small, low-cost items like office supplies, postage, or incidental costs fast and simple, with receipts later reconciled when the fund is replenished. This avoids delays and excessive paperwork for small purchases. It isn’t meant for paying salaries or for funding large acquisitions like equipment, which require separate payroll processes and capital budgeting. Replenishment restores the fund to its set level after the float is spent, keeping a ready cash cushion for future small purchases.

Petty cash is a small on-hand fund used to handle everyday, minor expenses quickly without routing every little purchase through the formal purchasing system. The point is to keep buying small, low-cost items like office supplies, postage, or incidental costs fast and simple, with receipts later reconciled when the fund is replenished. This avoids delays and excessive paperwork for small purchases. It isn’t meant for paying salaries or for funding large acquisitions like equipment, which require separate payroll processes and capital budgeting. Replenishment restores the fund to its set level after the float is spent, keeping a ready cash cushion for future small purchases.