Malik Retail Shop allows customers to use debit and bank credit cards as well as cash for purchases of merchandise. The company does not accept personal cheques. Malik's bank charges $0.25 for every debit card transaction and 3.0% for bank credit card transactions.
On July 1, the company established a petty cash fund. Before creating the petty cash fund, cash was taken from the cash register whenever someone needed cash to pay for a small expense.
The following transactions happened in the first two weeks of July:
July 1 Established the petty cash fund by cashing a cheque for $250.
8 Total sales for the week were $40,500. Customers paid for these purchases as follows: $14,940 in cash;
$11,060 on debit cards (164 transactions); and the balance using bank credit cards.
8 Replenished the petty cash fund. On this date, the fund consisted of $75 in cash and the following petty cash receipts:
Freight out ........................................................ $60
Supplies ............................................................. 30
Advertising in local paper ........................................ 40
Personal withdrawal by owner, R. Malik ...................... 50
15 Total sales for the week were $38,459. Customers paid for these purchases as follows: $9,907 in cash; $12,252 on debit cards (156 transactions); and the balance using bank credit cards.
15 Replenished the petty cash fund and decreased the balance to $200. On this date, the fund consisted of $73 in cash and the following petty cash receipts:
Postage .................................................. $44
Advertising in local newspaper ....................... 70
Supplies .................................................. 56
Instructions
(a) Record the transactions.
(b) What are the benefits of having a petty cash fund instead of paying small expenses from the cash register receipts? What policies and procedures should Malik follow to ensure there is good internal control over its petty cash fund?
Taking It Further
What are the advantages and disadvantages of accepting debit and credit card transactions as opposed to accepting personal cheques from customers? Consider both the internal control and business reasons.