Ramesh & Company allows customers to use debit and bank credit cards and cash for purchases of merchandise. The company does not accept personal cheques from customers. Ramesh's bank charges $0.20 for every debit card transaction and 3% for credit card transactions.
On May 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 June:
May 1 Established the petty cash fund by cashing a cheque for $150.
8 Total sales for the week were $14,175. Customers paid for these purchases as follows: $4,550 in cash; $5,325 on debit cards (55 transactions); and the balance using bank credit cards.
8 Replenished the petty cash fund. On this date, the fund consisted of $9 in cash and the following petty cash receipts:
Delivery of merchandise to customers ..................................... $44
Postage ............................................................................ 30
Advertising in local paper ...................................................... 54
Miscellaneous expense ......................................................... 10
15 Total sales for the week were $16,380. Customers paid for these purchases as follows: $3,690 in cash; $7,390 on debit cards (85 transactions); and the balance using bank credit cards.
15 Replenished the petty cash fund and increased the balance to $250. On this date, the fund consisted of $5 in cash and the following petty cash receipts:
B. Ramesh's personal withdrawal ..................................... $60
Supplies ..................................................................... 20
Delivery of merchandise to customers ................................. 67
Instructions
(a) Record the transactions.
(b) What are the advantages and disadvantages of accepting debit and bank credit card transactions as opposed to accepting only cash and personal cheques from customers? Consider both the internal control and business reasons.
Taking It Further
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 Ramesh & Company follow to ensure there is good internal control over its petty cash fund?