Which term best describes an amount of cash kept on hand and used for making small payments?

• A. Accounts receivable
• B. Petty cash
• C. Cash equivalents
• D. Imprest fund

Answer: (B)

Verified step by step guidance

1. Understand the concept of 'petty cash': Petty cash refers to a small amount of cash kept on hand by a business to cover minor expenses or small payments, such as office supplies or employee reimbursements.
2. Review the other terms provided in the options: 'Accounts receivable' refers to money owed to a company by its customers for goods or services provided on credit. 'Cash equivalents' are short-term, highly liquid investments that can be quickly converted into cash. 'Imprest fund' is a system used to manage petty cash, where a fixed amount is maintained and replenished as needed.
3. Compare the definitions: The term 'petty cash' specifically matches the description of cash kept on hand for small payments, while the other terms do not fit this purpose.
4. Recognize the correct answer: Based on the definitions, 'petty cash' is the term that best describes the scenario outlined in the question.
5. Apply this understanding to similar problems: When encountering questions about small cash reserves for minor expenses, remember that 'petty cash' is the appropriate term.