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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 7, Problem 2PA
Textbook Problem
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Transactions for petty cash, cash short and over

Wyoming Restoration Company completed the following selected transactions during July 20Y1:

Chapter 7, Problem 2PA, Transactions for petty cash, cash short and over Wyoming Restoration Company completed the following

Instructions

Journalize the transactions.

To determine

Journalize the petty cash transactions.

Explanation of Solution

Petty cash fund: Petty cash fund is a fund established to pay insignificant amounts like postage, office supplies, and lunches. In day-to-day life, it becomes difficult to use checks for daily expenses. Therefore, companies maintain some minimum amount of funds in the hand for such daily expenses. These funds are called as petty cash funds. These funds are managed by custodian. This system is otherwise called as imprest system.

Journal entry 1: Establish petty cash fund.

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
July1Petty Cash  1,100 
   Cash   1,100
    Open petty cash fund.   

Table (1)

Petty Cash is an asset and is increased by $1,100. Therefore, debit the Petty Cash account by $400. Cash is an asset and decreased by $1,100. Therefore, credit the Cash account by $1,100.

Journal entry 2: Record the cash sales.

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
July12Cash 8,220 
   Cash Short and Over   28
   Sales   8,192
    (To record the cash sales.)   

Table (2)

Cash is an asset and is increased due to cash sales. Thus, cash is debited with $8,220. Therefore, debit Cash account by $8,220. Sales as per cash records are $8,192. Thus, sales is credited with $8,192. The difference of $28 is credited with $28. Cash short and over is determined as follows:

Cash short and over = Cash – Sales= $8,220 – $8,192=$28

Journal entry: Replenishment of funds.

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
July 31Store Supplies 580 
  Delivery Expense 225 
  Office Supplies 140 
  Miscellaneous Administrative Expense 88 
  Cash Short and Over 20 
   Cash  1,053
    To record the replenishment of the petty cash fund.   

Table (3)

Store supplies and Office Supplies is an asset and it increases the value of asset. Therefore, debit store supplies and office supplies by $580 and $140 respectively. Delivery Expense is an expense and it decreases the value of equity. Therefore, debit Delivery Expense by $225. Miscellaneous administrative expenses is an expense and decreases the equity by $88. Thus, debit miscellaneous administrative expense with $88. Cash Short and over decreases the value of equity. The cash is short by $20. Therefore, debit Cash short and Over by $20. Cash is an asset and decreased by $1,053

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Chapter 7 Solutions

Financial And Managerial Accounting
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