Chapter 7: Accounting Systems and Books of Accounts

Question 1

Define source documents.

Answer 1

The original document that contains the details of a business transaction.
Prove that a transaction has taken place.

Question 2

Define cashbook.

Answer 2

• Cash book can be used instead of cash receipts and cash payment journals.
• A cash book is able to operate as both a journal and a ledger - there is no need of cash/bank account in the general ledger.
• Consists of a cash account and bank account put together in one book.
• The entries in cash book are posted to general ledger and subsidiary ledgers, except for contra entries.

Question 3

Define petty cash.

Answer 3

Petty cash is a small amount of money a company keeps for small, incidental expenses.
Examples of expenses for petty cash fund: Office supplies, meals, client lunch, stamps, reimbursing for small work-related expenses.

Question 4

Explain the petty cash imprest system.

Answer 4

• A petty cash fund that has a fixed balance, and periodically replenished to maintain its balance.
• The imprest system involves the following steps:
  1. A petty cash fund is established, with a set amount of cash.
  2. Any expenses paid through the petty cash fund must be documented with receipts/other documents.
  3. The fund is replenished periodically or when the balance is low. The spending records and supporting documents are submitted before reimbursements can be obtained.