A petty cash fund is an efficient way to handle what type of payments?

• A. Monthly utility bills
• B. Small, incidental expenses
• C. Employee payroll
• D. Large capital expenditures

Answer: (B)

Verified step by step guidance

1. Understand the concept of a petty cash fund: A petty cash fund is a small amount of cash kept on hand to cover minor, incidental expenses that are impractical to pay by check or electronic transfer.
2. Identify the types of payments typically handled by petty cash: These are usually small, day-to-day expenses such as office supplies, minor repairs, or employee reimbursements for small purchases.
3. Evaluate the options provided in the problem: Monthly utility bills, employee payroll, and large capital expenditures are generally not considered small or incidental expenses. These are typically paid through formal accounting processes like checks or electronic transfers.
4. Compare the correct answer to the purpose of petty cash: Small, incidental expenses align with the purpose of a petty cash fund, as they are minor and do not require extensive documentation or approval processes.
5. Conclude that petty cash is not suitable for large or recurring payments, such as utility bills, payroll, or capital expenditures, which require more formal accounting methods.