The correct option is D) Fewer entries in the general ledger To understand why option D is correct, we need to understand the concept. Petty cashbook is a special cashbook prepared for recording petty or small cash expenses. The benefit is that the chief cashier can focus on large cash and bank tranRead more
The correct option is D) Fewer entries in the general ledger
To understand why option D is correct, we need to understand the concept.
- Petty cashbook is a special cashbook prepared for recording petty or small cash expenses.
- The benefit is that the chief cashier can focus on large cash and bank transactions and there are fewer transactions in the main cashbook.
- The petty cashier is provided with a fixed amount for a month or week and is reimbursed the amount spent at the end of the period after he sends the details of expenses to the chief cashier.
- There are entries for the transfer of cash to the petty cashier in the main cashbook only.
Option A ‘No entries made at all in the general ledger for items paid by petty cash ‘ is wrong. It is not possible to omit entries of petty expense just because there is a petty cashbook. There will be entries related to:
- The cash is given to the petty cashier in a fixed amount or the amount spent as petty expenses during the month or week.
Petty cash A/c Dr.       Amt
   To Cash A/c                  Amt
 Option (B) ‘The same number of entries in the general ledger is wrong because there can never be the same number of entries as all the petty expenses are recorded in the petty cashbook and only the entries for transfer of cash to the petty cashier is recorded in the main cash book.
Option D ‘More entries made in the general ledger​’ is wrong because the number of entries actually reduce as only petty cash transfer entries are recorded in the main cashbook instead of numerous entries of petty cash transactions.
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Liabilities are obligations which a business owes to external or internal parties.As per the accounting equation liabilities are equal to the difference between assets and capital. Total Outside Liabilities in relation to the Borrower can be all secured and unsecured loans, including current liabilRead more
Liabilities are obligations which a business owes to external or internal parties.As per the accounting equation liabilities are equal to the difference between assets and capital.
Total Outside Liabilities in relation to the Borrower can be all secured and unsecured loans, including current liabilities of the Borrower.
External Liability or outside liability is an obligation which a business has to pay back to external parties i.e. lenders, vendors, government, etc. Payable to Sundry creditors for the supply of any goods for the business or payable to any contractors for receiving any services or payable to the Govt. or other departments for any statutory payments like taxes or other levies. All these liabilities are known as an external liability to the business and are shown on the liability side of the Balance sheet after charging into the profit & loss account of that period.
Where, Internal Liability – All obligations which a business has to pay back to internal parties such as promoters, employees, etc. are termed as internal liabilities. Example – Capital, Salaries, Accumulated profits, etc.
Example – Borrowings, Creditors, Taxes, etc.
Where, 1) Person A takes a loan from person B (person not associated with the company), person B is an external liability to person A.
2) Person A has a tax liability of Rs.1000, here the government is an external liability to whom A has to pay the liability amount.
3) Person A got goods on credit from person C for 60 days, C is an external liability to A, which A has to pay within the time period.
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