Final answer:
A petty cash fund is used to pay for small expenditures in a business, offering a convenient form of liquidity for on-the-spot purchases and the smooth operation of day-to-day activities.
Step-by-step explanation:
A petty cash fund is generally established in order to pay relatively small expenditures. This convenient cash reserve allows a business to make on-the-spot purchases where conventional payment methods like checks or debit cards may not be suitable. Such expenditures could include office supplies, minor repair costs, or small-scale company events. Having a petty cash fund therefore helps maintain business operations smoothly without the need to constantly withdraw cash from the bank.
Banks greatly facilitate the variety of transactions in the economy by offering services such as checking accounts or savings accounts. With these services, businesses and individuals can readily access their funds through direct withdrawals, writing checks, or using debit cards, without needing to carry large amounts of cash for payments. This system enhances the liquidity of money, making economic exchanges more secure and convenient.