Which one of the following statements is true?
A) Good cash management practices dictate that a company should maintain as large a balance as possible in its cash account.
B) Sound internal control practice dictates that disbursements should be made by check.
C) The person handling the cash should also prepare the bank reconciliation.
D) Petty cash can be substituted for a checking account to expedite the payment of all disbursements.

Question

Quizplus · Accepted Answer

Disbursements should be made by check to provide documentation of the payment and to ensure that the money goes to the intended recipient. Maintaining as large a balance as possible in a cash account (A) is not a good practice because it ties up funds that could be invested or used for other purposes. The person handling the cash should not prepare the bank reconciliation (C) as that would create a conflict of interest. Petty cash should not be substituted for a checking account (D) as it is not a secure or effective way to handle all disbursements.

Which One of the Following Statements Is True