Concept explainers
(a)
Petty cash fund: Petty cash fund is a fund established to pay insignificant amounts like postage, office supplies, and lunches.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
To journalize: The petty cash fund transactions in the books of Company K.
(a)
Explanation of Solution
Prepare journal entry for the transaction on August 1.
Date | Account Titles and Description | Post Ref. | Debit ($) | Credit ($) | |
August | 1 | Petty Cash | 200 | ||
Cash | 200 | ||||
(To create petty cash fund) |
Table (1)
Description:
- Petty Cash is an asset account. The asset is increased, and an increase in asset is debited.
- Cash is an asset account. The amount has decreased because cash is transferred to Petty Cash account. The asset is decreased, and a decrease in asset is credited.
Prepare journal entry for the transaction on August 15.
Date | Account Titles and Descriptions | Post. Ref. | Debit ($) | Credit ($) | |
August | 15 | Freight-out | 74.40 | ||
Entertainment Expense | 36.00 | ||||
Postage Expense | 33.70 | ||||
Miscellaneous Expense | 27.50 | ||||
Cash Short and Over | 3.40 | ||||
Cash | 175.00 | ||||
(To record replenishment of petty cash fund) |
Table (2)
Description:
- Freight-out is an expense account. Expenses decrease value of stockholders’ equity account, and a decrease in equity is debited.
- Entertainment Expense is an expense account. Expenses decrease value of stockholders’ equity account, and a decrease in equity is debited.
- Postage Expense is an expense account. Expenses decrease value of stockholders’ equity account, and a decrease in equity is debited.
- Miscellaneous Expense is an expense account. Expenses decrease value of stockholders’ equity account, and a decrease in equity is debited.
- Cash Short and Over is a stockholders’ equity account. The increase (overage) is credited and decrease (shortage) is debited. Hence, debit Cash Short and Over account with $3.40 indicating less amount of cash balance.
- Cash is an asset account. Since the expenditures are recognized from petty cash fund petty cash is decreased, and a decrease in asset is credited.
Working Notes:
Calculate cash spent.
Calculate cash short and over amount.
Step 1: Calculate the total of expenses.
Particulars | Amount ($) |
Freight-out | 74.40 |
Entertainment Expense | 36.00 |
Postage Expense | 33.70 |
Miscellaneous Expense | 27.50 |
Total expenses | $171.60 |
Table (3)
Step 2: Calculate the cash and short over amount.
Note: Refer to Equation (1) and Step (1) for values and computations of amount of cash spent and total expenses.
Prepare journal entry for the transaction on August 16.
Date | Account Titles and Description | Post Ref. | Debit ($) | Credit ($) | |
August | 16 | Petty Cash | 200 | ||
Cash | 200 | ||||
(To create petty cash fund) |
Table (4)
Description:
- Petty Cash is an asset account. The asset is increased, and an increase in asset is debited.
- Cash is an asset account. The amount has decreased because cash is transferred to Petty Cash account. The asset is decreased, and a decrease in asset is credited.
Prepare journal entry for the transaction on August 31.
Date | Account Titles and Descriptions | Post Ref. | Debit ($) | Credit ($) | |
August | 31 | Postage Expense | 145.00 | ||
Entertainment Expense | 90.60 | ||||
Freight-out | 46.40 | ||||
Cash Short and Over | 1.00 | ||||
Cash | 283.00 | ||||
(To record replenishment of petty cash fund) |
Table (5)
Description:
- Postage Expense is an expense account. Expenses decrease value of stockholders’ equity account, and a decrease in equity is debited.
- Entertainment Expense is an expense account. Expenses decrease value of stockholders’ equity account, and a decrease in equity is debited.
- Freight-out is an expense account. Expenses decrease value of stockholders’ equity account, and a decrease in equity is debited.
- Cash Short and Over is a stockholders’ equity account. The increase (overage) is credited and decrease (shortage) is debited. Hence, debit Cash Short and Over account with $1.00 indicating less amount of cash balance.
- Cash is an asset account. Since the expenditures are recognized from petty cash fund petty cash is decreased, and a decrease in asset is credited.
Working Notes:
Calculate cash spent.
Calculate cash short and over amount.
Step 1: Calculate the total of expenses.
Particulars | Amount ($) |
Postage Expense | 145.00 |
Entertainment Expense | 90.60 |
Freight-out | 46.40 |
Total expenses | $282.00 |
Table (6)
Step 2: Calculate the cash and short over amount.
Note: Refer to Equation (2) and Step (1) for values and computations of amount of cash spent and total expenses.
(b)
To
(b)
Explanation of Solution
Post the amounts of journal entries to Petty Cash account.
Petty Cash account
Date | Particulars | Debit ($) | Credit ($) | Balance | |
Debit ($) | Credit ($) | ||||
August 1 | Cash | 200 | 200 | ||
August 16 | Cash | 200 | 400 |
Table (7)
(c)
The internal control features of petty cash fund.
(c)
Explanation of Solution
The following are the internal control features of petty cash fund:
- Authorizing the responsibility of custody of cash fund
- Documenting and recording the petty cash receipt which is pre-numbered
- Periodic independent verification at the time of approving the request for replenishment
Want to see more full solutions like this?
Chapter 7 Solutions
FINANCIAL ACCT.:TOOLS...(LL)-W/ACCESS
- On May 2 Kellie Company has decided to initiate a petty cash fund in the amount of $1,200. Prepare journal entries for the following transactions: A. On July 5, the petty cash fund needed replenishment, and the following are the receipts: Auto Expense $125, Supplies $368, Postage Expense $325, Repairs and Maintenance Expense $99, Miscellaneous Expense $259. The cash on hand at this time was $38. B. On June 14, the petty cash fund needed replenishment, and the following are the receipts: Auto Expense $425, Supplies $95, Postage Expense $240, Repairs and Maintenance Expense $299, Miscellaneous Expense $77. The cash on hand at this time was $80. C. On June 23, the petty cash fund needed replenishment, and the following are the receipts: Auto Expense $251, Supplies $188, Postage Expense $263, Repairs and Maintenance Expense $182, Miscellaneous Expense $203. The cash on hand at this time was $93. D. On June 29, the company determined that the petty cash fund needed to be decreased to $1,000. E. On June 30, the petty cash fund needed replenishment as it was month-end. The following are the receipts: Auto Expense $114, Supplies $75, Postage Expense $50, Repairs and Maintenance Expense $121, Miscellaneous Expense $39. The cash on hand at this time was $603.arrow_forwardOn June 1 French company has decided to initiate a petty cash fund in the amount of $800. Prepare journal entries for the following transactions: A. On June 5, the petty cash fund needed replenishment, and the following are the receipts: Auto Expense $37, Supplies $124, Postage Expense $270, Repairs and Maintenance Expense $168, Miscellaneous Expense $149. The cash on hand at this time was $48. B. On June 14, the petty cash fund needed replenishment, and the following are the receipts: Auto Expense $18, Supplies $175, Postage Expense $50, Repairs and Maintenance Expense $269, Miscellaneous Expense $59. The cash on hand at this time was $220. C. On June 23, the petty cash fund needed replenishment, and the following are the receipts: Auto Expense $251, Supplies $88, Postage Expense $63, Repairs and Maintenance Expense $182, Miscellaneous Expense $203. The cash on hand at this time was $20. D. On June 29, the company determined that the petty cash fund needed to be increased to $1,000. E. On June 30, the petty cash fund needed replenishment, as it was month end. The following are the receipts: Auto Expense $18, Supplies $175, Postage Expense $50, Repairs and Maintenance Expense $269, Miscellaneous Expense $59. The cash on hand at this time was $437.arrow_forwardOn July 2 Kellie Company has decided to initiate a petty cash fund in the amount of $1,200. Prepare journal entries for the following transactions: A. On July 5, the petty cash fund needed replenishment, and the following are the receipts: Auto Expense $125, Supplies $368, Postage Expense $325, Repairs and Maintenance Expense $99, Miscellaneous Expense $259. The cash on hand at this time was $38. B. On June 14, the petty cash fund needed replenishment, and the following are the receipts: Auto Expense $425, Supplies $95, Postage Expense $240, Repairs and Maintenance Expense $299, Miscellaneous Expense $77. The cash on hand at this time was $110. C. On June 23, the petty cash fund needed replenishment and the following are the receipts: Auto Expense $251, Supplies $188, Postage Expense $263, Repairs and Maintenance Expense $182, Miscellaneous Expense $203. The cash on hand at this time was $93. D. On June 29, the company determined that the petty cash fund needed to be decreased to $1,000. E. On June 30, the petty cash fund needed replenishment, as it was month end. The following are the receipts: Auto Expense $14, Supplies $75, Postage Expense $150, Repairs and Maintenance Expense $121, Miscellaneous Expense $39. The cash on hand at this time was $603.arrow_forward
- Century 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:CengageCollege Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College Pub
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeFinancial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningCollege Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,