What is the primary purpose of a petty cash fund?

• A. To cover small cash payments
• B. To fund large purchases
• C. To manage payroll
• D. To handle bank loans

Answer: (A)

The main idea behind petty cash is to have a small, ready supply of cash for everyday, small payments. It keeps routine expenditures like stamps, postage, minor office supplies, or a quick taxi fare from needing a formal payment from the main cash book or issuing many tiny cheques. As you spend, you record each item with a receipt in a petty cash book. The fund is kept at a fixed level (an imprest system), so when it gets low, you replenish it by matching the exact amount spent with a single reimbursement voucher. This setup gives simple control over small cash outlays while avoiding constant small transactions in the main accounts.

Large purchases, payroll, and bank loans involve different processes and financing, so they’re not what petty cash is for.