FINANCIAL AND MANAGERIAL ACCOUNTING
FINANCIAL AND MANAGERIAL ACCOUNTING
13th Edition
ISBN: 9781337816045
Author: WARREN
Publisher: CENGAGE L
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Chapter 7, Problem 7.2BPR
To determine

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.

Expert Solution & Answer
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Explanation of Solution

Journal entry 1: Establish petty cash fund.

Date Account Title and Description Post Ref Debit ($) Credit ($)
June 1 Petty Cash   1,000  
      Cash     1,000
        (Open petty cash fund.)      

Table -1

Description: Petty Cash is an asset and is increased by $1,000. Therefore, debit the Petty Cash account by $1,000. Cash is an asset and decreased by $1,000. Therefore, credit the Cash account by $1,000.

Journal entry 2: Record the cash sales.

Date Account Title and Description Post Ref Debit ($) Credit ($)
June 12 Cash   9,506  
      Cash Short and Over     66
      Sales     9,440
        (To record the cash sales.)      

Table -2

Description: Cash is an asset and is increased due to cash sales. Thus, cash is debited with $9,506. Therefore, debit Cash account by $9,506. Sales as per cash records are $9,440.Thus, sales is credited with $9,440. The difference of $66 is credited with $66. Cash short and over is determined as follows:

Cash short and over = Cash – Sales= $9,506 – $9,440=$66

Journal entry 3: Replenishment of funds.

Date Account Title and Description Post Ref Debit ($) Credit ($)
June 30 Store Supplies   375  
    Merchandise inventory   215  
    Office Supplies   208  
    Miscellaneous Administrative Expense   134  
    Cash Short and Over   22  
      Cash     954
        (To record the replenishment of the petty cash fund.)      

Table -3

Description: Store supplies and Office Supplies is an asset and it increases the value of asset. Therefore, debit store supplies and office supplies by $375 and $208 respectively. Merchandise inventory is an asset and it increases the value of equity. Therefore, debit Merchandise inventory by $215. Miscellaneous administrative expenses are an expense. It decreases the equity by $134. Thus, debit miscellaneous administrative expense with $134. Cash Short and Over decreases the value of equity. The cash is short by $22. Therefore, debit Cash Short and Over by $22. Cash is an asset and decreased by $954. Therefore, credit the cash account by $954.

Working notes for cash spent and cash short and over are provided below:

Calculate the cash spent as below:

Cash spent= (Petty cash fundAmount in petty cash fund after expenses)=$1,000$46=$954

Calculate the total payments.

Payments Amount ($)
Store Supplies 375
Merchandise inventory 215
Office Supplies 208
Miscellaneous Administrative Expense 134
Total payments 932

Table -4

Next, calculate cash short and over.

Cash short and over = Total cash payments – Cash =$932$954=($22)

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 4: Record the cash sales.

Date Account Title and Description Post Ref Debit ($) Credit ($)
June 30   Cash   13,350  
    Cash Short and Over   40  
      Sales     13,390
        (To record the cash sales.)      

Table -5

Description: Cash is an asset and is increased due to cash sales. Thus, cash is debited with $13,350. Therefore, debit Cash account by $13,350. The difference of $40 and is debited.  Sales as per cash records are $13,390.Thus, sales is credited with $13,390. Cash short and over is determined as follows:

Cash short and over = Cash – Sales= $13,390 – $13,350=$40

Journal entry 5: Decrease in petty cash

Date Account Title and Description Post Ref Debit ($) Credit ($)
June 30 Cash   200  
      Petty cash     200
        Open petty cash fund.      

Table -6

Description: Cash is an asset and increased by $200. Therefore, debit Cash account with $200. Petty cash is an asset and decreased with $200. Thus, credit petty cash account with $200.

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Transactions for Petty Cash, Cash Short and Over Cedar Springs Company completed the following selected transactions during June: June 1. Established a petty cash fund of $410. 12. The cash sales for the day, according to the cash register records, totaled $14,450. The actual cash received from cash sales was $14,475. 30. Petty cash on hand was $31. Replenished the petty cash fund for the following disbursements, each evidenced by a petty cash receipt: June   2. Store supplies, $45. June 10. Express charges on merchandise purchased, $66 (Merchandise Inventory). June 14. Office supplies, $29. June 15. Office supplies, $33. June 18. Postage stamps, $34 (Office Supplies). June 20. Repair to fax, $82 (Miscellaneous Administrative Expense). June 21. Repair to office door lock, $29 (Miscellaneous Administrative Expense). June 22. Postage due on special delivery letter, $22 (Miscellaneous Administrative Expense). June 28. Express charges on merchandise purchased, $33 (Merchandise…
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Jeremiah Restoration Company completed the following selected transactions during January: Jan. 1. Established a petty cash fund of $745. 12. The cash sales for the day, according to the cash register records, totaled $12,987. The actual cash received from cash sales was $13,011. 31. Petty cash on hand was $154. Replenished the petty cash fund for the following disbursements, each evidenced by a petty cash receipt:   Jan. 3. Store supplies, $387. 7. Express charges on merchandise sold, $34 (Delivery Expense). 9. Office supplies, $15. 13. Office supplies, $28. 19. Postage stamps, $12 (Office Supplies). 21. Repair to office file cabinet lock, $13 (Miscellaneous Administrative Expense). 22. Postage due on special delivery letter, $25 (Miscellaneous Administrative Expense). 24. Express charges on merchandise sold, $57 (Delivery Expense). 30. Office supplies, $7.   Jan. 31. The cash sales for the day, according to the cash register records, totaled…
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