Smyrna Inc

Accounting Jan 22, 2021

Smyrna Inc. has a petty cash fund of $900.
(a) Since the petty cash fund is only $900, should Smyrna Inc., implement controls over petty cash?
(b) What controls, if any, could be used for the petty cash fund?

Expert Solution

a)Yes. Even though the petty cash fund is only $900, if the fund is replenished frequently, a significant amount of cash could be stolen. For example, if the fund is replenished weekly, then $46,800 ($900 × 52 weeks) could be subject to theft.

b)Controls for petty cash include (1) designating one person who is responsible for the fund, (2) maintaining a written record of all payments, (3) requiring support (receipts) for payments from the fund, and (4) periodic review of the funds on hand and the payments by an independent person.

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