Answer 2:

Bank Account

Capital Account

Drawings Account

Furniture Account

Accounts Payable Account

Advantages of Petty Cash System:

• Convenience: Provides a quick and easy method for making small payments without the delays associated with cheque processing.
• Cost-Effective: Reduces the number of cheques required, saving on stationery, bank charges, and administrative time.
• Improved Efficiency: Allows staff to handle immediate expenses without needing to seek authorisation for each individual payment.
• Control: The fixed amount of cash provides a degree of control over spending.

Disadvantages of Petty Cash System:

• Risk of Theft: The cash is held on the premises, making it vulnerable to theft.
• Potential for Errors: Requires careful record-keeping to avoid errors in recording transactions.
• Limited Accountability: It can be difficult to track exactly how the cash is being spent.
• Requires Regular Reconciliation: Needs to be reconciled regularly to ensure accuracy and prevent discrepancies.
• Not Suitable for Large Payments: Only suitable for small, infrequent payments. Larger expenses require cheques or electronic transfers.

Advantages of Bank Transfers:

• Security: Bank transfers are generally considered very secure, especially with two-factor authentication. They are less susceptible to fraud than cash or cheques.
• Traceability: Bank transfers provide a clear audit trail, making it easy to track payments and reconcile accounts. Transaction details are readily available.
• Convenience: Bank transfers can be initiated and received quickly, often online, providing convenience for both the buyer and seller.
• Reduced Risk of Loss: Unlike cash, bank transfers eliminate the risk of loss or theft during transportation.

Disadvantages of Bank Transfers:

• Bank Charges: Businesses may incur bank charges for initiating or receiving transfers, which can reduce profit margins.
• Processing Time: While generally quick, bank transfers can sometimes take 1-2 business days to clear, delaying payment to suppliers.
• Incorrect Details: Errors in the recipient's bank details (account number, sort code) can lead to delays or failed payments.
• Potential for Errors: Although rare, bank transfer errors can occur, requiring time and effort to resolve.

Influence on Business Decision:

A business might choose bank transfers over other methods (like cheques or cash) if security and traceability are paramount, especially for large payments. However, if speed of payment is critical, or if the business has a strong relationship with the supplier and trust is high, other methods might be preferred. The cost of bank charges also needs to be considered, particularly for small businesses with tight margins. The business will weigh the benefits of security and auditability against the potential costs and processing times.