Concept explainers
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.
To journalize: The petty cash transactions.
Explanation of Solution
Date | Account Title and Description | Post Ref | Debit ($) | Credit ($) | |||
October | 1 | Petty Cash | 750 | ||||
Cash | 750 | ||||||
Open petty cash fund. |
Description: Petty Cash is an asset and is increased by $750. Therefore, debit the Petty Cash account by $750. Cash is an asset and decreased by $750. Therefore, credit the Cash account by $750.
Journal entry 2: Record the cash sales.
Date | Account Title and Description | Post Ref | Debit ($) | Credit ($) | |||
October | 12 | Cash | 12,465 | ||||
Cash Short and Over | 25 | ||||||
Sales | 12,440 | ||||||
(To record the cash sales.) |
Description: Cash is an asset and is increased due to cash sales. Thus, cash is debited with $12,465. Therefore, debit Cash account by $12,465. Sales as per cash records are $12,465.Thus, sales is credited with $12,440. The difference of $25 is credited as Cash short and over.
Working note for determining cash short and over is as below:
Journal entry: Replenishment of funds.
Date | Account Title and Description | Post Ref | Debit ($) | Credit ($) | |||
October | 31 | Store Supplies | 390 | ||||
Delivery Expense | 90 | ||||||
Office Supplies | 56 | ||||||
Miscellaneous Administrative Expense | 42 | ||||||
Cash Short and Over | 15 | ||||||
Cash | 593 | ||||||
(To record the replenishment of the petty cash fund.) |
Description: Store supplies and Office Supplies is an asset and it increases the value of asset. Therefore, debit store supplies and office supplies by $390 and $56 respectively. Delivery Expense is an expense and it decreases the value of equity. Therefore, debit Delivery Expense by $90. Miscellaneous administrative expenses are an expense. It decreases the equity by $42. Thus, debit miscellaneous administrative expense with $42. Cash Short and Over decreases the value of equity. The cash is short by $15. Therefore, debit Cash Short and Over by $15. Cash is an asset and decreased by $593. Therefore, credit the cash account by $593.
Working notes for cash spent and cash short and over are provided below:
Calculate the cash spent as below:
Calculate the total payments.
Payments | Amount ($) |
Store Supplies | 390 |
Delivery Expense | 90 |
Office Supplies | 56 |
Miscellaneous Administrative Expense | 42 |
Total payments | 578 |
Next, calculate cash short and over.
Description: Determining of petty cash before replenishment involves two steps. First, calculate the total payments. Then determine the difference between imprest balance and total payments. This amount is petty cash fund before replenishment.
Journal entry 2: Record the cash sales.
Date | Account Title and Description | Post Ref | Debit ($) | Credit ($) | |||
October | 31 | Cash | 18,780 | ||||
Cash Short and Over | 40 | ||||||
Sales | 18,820 | ||||||
(To record the cash sales.) |
Description: Cash is an asset and is increased due to cash sales. Thus, cash is debited with $18,780. Therefore, debit Cash account by $18,780. The difference of $40 and is debited. Sales as per cash records are $18,820.Thus, sales is credited with $18,820. Cash short and over is determined as follows:
Journal entry 1: Decrease in petty cash
Date | Account Title and Description | Post Ref | Debit ($) | Credit ($) | |||
October | 31 | Cash | 100 | ||||
Petty cash | 100 | ||||||
(Open petty cash fund.) |
Description: Cash is an asset and increased by $100. Therefore, debit Cash account with $100. Petty cash is an asset and decreased with $100. Thus, credit petty cash account with $100.
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Chapter 7 Solutions
Financial & Managerial Accounting
- On 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_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 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_forward
- Record the following transactions: A. Started a petty cash fund in the amount of $1,000. B. Replenished petty cash fund using the following expenses: Auto $61, Office Expenses $23, Postage Expense $57, Miscellaneous Expenses $30. C. The company has decided to reduce the petty cash fund to $600.arrow_forwardOn September 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 September 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 September 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 $210. C. On September 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 September 29, the company determined that the petty cash fund needed to be increased to $1,000. E. On September 30, the petty cash fund needed replenishment as it was month end. The following are the receipts: Auto Expense $18, Supplies $15, Postage Expense $57, Repairs and Maintenance Expense $49, Miscellaneous Expense $29. The cash on hand at this time was $837.arrow_forwardRecord the following transactions: A. Started a petty cash fund in the amount of $500. B. Replenished petty cash fund using the following expenses: Auto $24, Office Expenses $43, Postage Expense $19, Miscellaneous Expenses $25. Cash on hand is $389. C. The company has decided to reduce the petty cash fund to $300.arrow_forward
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