Observation

Majority of the candidates attempted this question but the performance was poor. Some of the candidates performed fairly in the (b) part of the question. However, many of them gave wrong reasons for which a cheque would be dishonoured and could not properly state the advantages of keeping petty cash book on imprest system.

Some of the expected responses were:

(a) The reasons for which a cheque would be dishonoured are:

(i) insufficient funds in the drawer’s account;

(ii) irregular signature of the drawer;

(iii) omission of date on the cheque;

(iv) when the amount in figure differs from the amount in words;

(v) if there is any alteration that is not endorsed;

(vi) when the cheque is stale;

(vii) if the cheque is not signed by the drawer;

(vii) when a post dated cheque is presented for payment before the due date;

(ix) when the bank is notified about the death of the drawer;

(x) when the drawer directs the bank not to honour the cheque;

(xi) when the bank is notified about the insanity of the drawer.

(b) (i) Petty cash float
It is the maximum amount a petty cashier is allowed to hold at any point in time for the payment of minor expenses.

(ii) Contra entries
These are entries which are recorded on the opposite sides of an earlier entry to reverse or offset their effects on their account balances.

OR

They are entries made for transactions whose debits and credits are in the same book.

(iii) Imprest system:
This is a system whereby a fixed amount of money is given to a petty cashier for the payment of minor expenses and he is reimbursed with the amount disbursed over a period of time.

(c) The advantages of keeping petty cash book using imprest system are:

(i) It saves the main cashier’s time so as to concentrate on larger disbursements;

(ii) It provides a training opportunity for young and inexperienced cashiers that enables them to take up higher cash responsibilities;

(iii) It provides support for internal checks/detection of errors;

(iv) It minimizes delays in cash disbursements;

(v) It reduces the burden on the main cashier;

(vi) It enables the petty cashier to analyse expenditure as they occur;

(vii) It decongests the main cashbook;

(viii) It helps to classify petty expenses for easy identification.