Cash Book & Petty Cash Interview Questions & Answers

Q: How is petty cash treated at the period end for the financial statements?

The petty cash balance (cash in hand) is a current asset shown with cash and bank. At period end, ensure the float is reconciled (cash plus vouchers equal the imprest), any unreimbursed expenditure is posted to the correct expense accounts (accrue if reimbursed after year-end), and the physical cash is counted and agreed to the book balance.

Q: What internal controls apply to cash and petty cash handling?

Controls include: the imprest system, pre-numbered authorized vouchers with receipts, segregation between the cashier and the person recording, regular independent cash counts agreed to the book, secure storage (locked box/safe), limits on individual petty cash payments, and prompt banking of cash receipts. These reduce theft and error.

Q: What is the difference between the cash book and the bank statement?

The cash book is the business's own record of bank transactions; the bank statement is the bank's record of the same account. They often differ temporarily due to timing (unpresented cheques, outstanding lodgements) and items known only to one party (bank charges, direct debits). A bank reconciliation explains the differences.

Q: How do you record dishonoured (bounced) cheques in the cash book?

When a customer's cheque previously recorded as received is dishonoured by the bank, reverse the receipt: credit the bank column of the cash book (money not actually received) and debit the customer's account in the sales ledger to reinstate the debt. Any bank charge for the dishonour is also recorded as a payment/expense.

Q: What entries arise from bank charges, interest, and standing orders in the cash book?

These items often appear first on the bank statement and must be entered in the cash book: bank charges and interest paid are credited (payments) and debited to expense; interest received is debited (receipt) and credited to income; standing orders/direct debits are credited as payments to the relevant expense or payable. They're picked up during bank reconciliation.

Q: What does a debit balance and a credit balance mean in the cash book?

A debit balance in the cash book means the business has cash/money at the bank (an asset). A credit balance on the bank column means the bank account is overdrawn (a liability—the business owes the bank). The petty cash and cash columns normally carry debit balances.

Q: How is the analysis (columnar) cash book useful and how is it posted?

An analysed cash book adds columns categorizing receipts and payments (e.g., sales, debtors, wages, purchases, expenses, VAT). This speeds ledger posting because each column total is posted once to the relevant nominal account, rather than posting every transaction individually, while the cash/bank columns maintain the running balance.

Q: Why might the petty cash book not balance and how do you investigate?

It may not balance due to unrecorded vouchers, arithmetic errors in analysis columns, missing receipts, cash taken without a voucher, or theft. Investigate by recounting the cash, agreeing cash plus vouchers to the imprest, re-casting the columns, checking each voucher is recorded, and reviewing authorizations. Persistent shortfalls may indicate a control failure.

Q: What is the difference between cash and bank in bookkeeping?

Cash refers to physical notes and coins held by the business (and till floats); bank refers to money held in the bank account, moved by cheques, transfers, and cards. They are recorded in separate columns of the cash book and are distinct assets that are each reconciled.

Q: How is the receipt of capital or a loan recorded in the cash book?

Money introduced by the owner (capital) or borrowed (loan) is a receipt: debit the bank column of the cash book and credit the capital account or loan account respectively. The cash book captures the inflow while the ledger records the source as capital or a liability.

How is petty cash treated at the period end for the financial statements?

Advanced

The petty cash balance (cash in hand) is a current asset shown with cash and bank. At period end, ensure the float is reconciled (cash plus vouchers equal the imprest), any unreimbursed expenditure is posted to the correct expense accounts (accrue if reimbursed after year-end), and the physical cash is counted and agreed to the book balance.

Real-world example At year-end the petty cash is counted, agreed to the book, and any spent-but-unreimbursed amount is posted to expenses.

Common follow-ups: Where does petty cash appear on the balance sheet? | Why post unreimbursed spend before year-end?

Correcting Errors Trial Balance Cash Book & Petty Cash

What internal controls apply to cash and petty cash handling?

Intermediate

Controls include: the imprest system, pre-numbered authorized vouchers with receipts, segregation between the cashier and the person recording, regular independent cash counts agreed to the book, secure storage (locked box/safe), limits on individual petty cash payments, and prompt banking of cash receipts. These reduce theft and error.

Real-world example An independent surprise count of the petty cash tin, agreed to the book and vouchers, deters misappropriation.

Common follow-ups: Why do surprise counts help? | How does segregation of duties apply to cash?

Bank Reconciliation Correcting Errors Cash Book & Petty Cash

What is the difference between the cash book and the bank statement?

Beginner

The cash book is the business's own record of bank transactions; the bank statement is the bank's record of the same account. They often differ temporarily due to timing (unpresented cheques, outstanding lodgements) and items known only to one party (bank charges, direct debits). A bank reconciliation explains the differences.

Real-world example The cash book shows a cheque paid immediately, but the bank statement shows it only when it clears—hence a difference.

Common follow-ups: Why do the two records differ? | What resolves the differences?

Bank Reconciliation Books of Prime Entry Cash Book & Petty Cash

How do you record dishonoured (bounced) cheques in the cash book?

Advanced

When a customer's cheque previously recorded as received is dishonoured by the bank, reverse the receipt: credit the bank column of the cash book (money not actually received) and debit the customer's account in the sales ledger to reinstate the debt. Any bank charge for the dishonour is also recorded as a payment/expense.

Customer cheque 500 bounces:
  Cr Bank (cash book) 500
  Dr Debtor (customer) 500  -- reinstate the receivable

Real-world example A bounced customer cheque is credited out of the bank column and the receivable is reinstated for collection.

Common follow-ups: Which account is debited when a cheque bounces? | How is the bank charge handled?

Bank Reconciliation Sales & Purchase Ledgers Cash Book & Petty Cash

What entries arise from bank charges, interest, and standing orders in the cash book?

Intermediate

These items often appear first on the bank statement and must be entered in the cash book: bank charges and interest paid are credited (payments) and debited to expense; interest received is debited (receipt) and credited to income; standing orders/direct debits are credited as payments to the relevant expense or payable. They're picked up during bank reconciliation.

Bank charges 30: Cr Bank (cash book) 30; Dr Bank Charges 30
Interest received 12: Dr Bank 12; Cr Interest Income 12

Real-world example Bank charges shown only on the statement are entered into the cash book so it agrees before reconciliation.

Common follow-ups: Why update the cash book for statement-only items? | Which side records bank charges?

Bank Reconciliation Correcting Errors Cash Book & Petty Cash

What does a debit balance and a credit balance mean in the cash book?

Beginner

A debit balance in the cash book means the business has cash/money at the bank (an asset). A credit balance on the bank column means the bank account is overdrawn (a liability—the business owes the bank). The petty cash and cash columns normally carry debit balances.

Real-world example A credit bank balance in the cash book signals the business is overdrawn and owes the bank.

Common follow-ups: What does an overdraft look like in the cash book? | Which balance is an asset?

Bank Reconciliation Trial Balance Cash Book & Petty Cash

How is the analysis (columnar) cash book useful and how is it posted?

Advanced

An analysed cash book adds columns categorizing receipts and payments (e.g., sales, debtors, wages, purchases, expenses, VAT). This speeds ledger posting because each column total is posted once to the relevant nominal account, rather than posting every transaction individually, while the cash/bank columns maintain the running balance.

Payments analysis: Wages | Purchases | Expenses | VAT
  Post each column total to its nominal account.

Real-world example A small business posts monthly column totals from its analysed cash book instead of hundreds of individual entries.

Common follow-ups: Why does column analysis speed posting? | What maintains the running balance?

Books of Prime Entry Control Accounts Cash Book & Petty Cash

Why might the petty cash book not balance and how do you investigate?

Intermediate

It may not balance due to unrecorded vouchers, arithmetic errors in analysis columns, missing receipts, cash taken without a voucher, or theft. Investigate by recounting the cash, agreeing cash plus vouchers to the imprest, re-casting the columns, checking each voucher is recorded, and reviewing authorizations. Persistent shortfalls may indicate a control failure.

Real-world example A shortfall is traced to a missing voucher for an unrecorded stamp purchase, which is then entered to restore agreement.

Common follow-ups: What should cash plus vouchers equal? | What could a persistent shortfall indicate?

Correcting Errors Bank Reconciliation Cash Book & Petty Cash

What is the difference between cash and bank in bookkeeping?

Beginner

Cash refers to physical notes and coins held by the business (and till floats); bank refers to money held in the bank account, moved by cheques, transfers, and cards. They are recorded in separate columns of the cash book and are distinct assets that are each reconciled.

Real-world example Notes in the till are cash; the current account balance is bank—tracked in separate cash book columns.

Common follow-ups: How are they recorded differently? | Which is reconciled to a statement?

Bank Reconciliation Books of Prime Entry Cash Book & Petty Cash

How is the receipt of capital or a loan recorded in the cash book?

Intermediate

Money introduced by the owner (capital) or borrowed (loan) is a receipt: debit the bank column of the cash book and credit the capital account or loan account respectively. The cash book captures the inflow while the ledger records the source as capital or a liability.

Owner pays in 5,000: Dr Bank 5,000; Cr Capital 5,000.

Real-world example When the owner injects funds, the bank column is debited and capital credited.

Common follow-ups: Which account is credited for a loan receipt? | Which cash book side records receipts?

Books of Prime Entry Trial Balance Cash Book & Petty Cash