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 $1.25 for every debit card transaction and 2.0% for bank credit card transactions.

On July 1, the company established a petty cash fund. Before it created 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 July:

July1 Established the petty cash fund by cashing a cheque for $300.

8 Total sales for the week were $32,750. Customers paid for these purchases as follows: $12,081 in cash, $8,943 on debit cards (134 transactions), and the balance using bank credit cards.

8 Replenished the petty cash fund. On this date, the fund consisted of $87 in cash and the following petty cash receipts:

Freight out $69

Supplies 35

Advertising in local paper 46

Personal withdrawal by owner, R. Malik 58

15 Total sales for the week were $29,050. Customers paid for these purchases as follows: $10,912 in cash, $9,832 on debit cards (156 transactions), and the balance using bank credit cards.

25 Replenished the petty cash fund and decreased the balance to $250. On this date, the fund consisted of $16 in cash and the following petty cash receipts:

Postage $79

Advertising in local newspaper 93

Supplies 98

Instructions

a.Record the transactions. Round to the nearest dollar.

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.