Financial Accounting
Financial Accounting
15th Edition
ISBN: 9781337272124
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
bartleby

Concept explainers

Question
Chapter 8, Problem 2PA
To determine

Journalize the petty cash transactions.

Expert Solution & Answer
Check Mark

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 ($)Credit ($)
January1Petty Cash  900 
   Cash   900
    Open petty cash fund.   

Petty Cash is an asset and is increased by $900. Therefore, debit the Petty Cash account by $900. Cash is an asset and decreased by $900. Therefore, credit the Cash account by $900.

Journal entry 2: Record the cash sales.

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
January 12Cash 6,180 
   Cash Short and Over   32
   Sales   6,148
    (To record the cash sales.)   

Cash is an asset and is increased due to cash sales. Thus, cash is debited with $6.180. Therefore, debit Cash account by $8,220. Sales as per cash records are $6,148. Thus, sales is credited with $6,148. The difference of $32 is credited with $32. Cash short and over is determined as follows:

Cash short and over = Cash – Sales= $6,180 – $6,148=$32

Journal entry: Replenishment of funds.

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
January 31Store Supplies 470 
  Delivery Expense 140 
  Office Supplies 110 
  Miscellaneous Administrative Expense 90 
  Cash Short and Over 15 
   Cash  825
    To record the replenishment of the petty cash fund.   

Store supplies and Office Supplies is an asset and it increases the value of asset. Therefore, debit store supplies and office supplies by $470 and $110 respectively. Delivery Expense is an expense and it decreases the value of equity. Therefore, debit Delivery Expense by $140. Miscellaneous administrative expenses are an expense. It decreases the equity by $90. Thus, debit miscellaneous administrative expense with $90. 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 $825. Therefore, credit the cash account by $825.

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)=$900$75=$825

Calculate the total payments.

PaymentsAmount ($)
Store Supplies470
Delivery Expense140
Office Supplies110
Miscellaneous Administrative Expense90
Total payments810

Next, calculate cash short and over.

Cash short and over = Total cash payments – Cash =$810$825=($15)

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.

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
January12Cash 4,536 
  Cash Short and Over 14 
   Sales   4,550
    (To record the cash sales.)   

Cash is an asset and is increased due to cash sales. Thus, cash is debited with $4,536. Therefore, debit Cash account by $4,536. The difference of $14 and is debited.  Sales as per cash records are $4,536. Thus, sales is credited with $4,536. Cash short and over is determined as follows:

Cash short and over = Cash – Sales= $4,536 – $4,550=$14

Journal entry 1: Decrease in petty cash

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
July1Cash  200 
   Petty cash   200
    Open petty cash fund.   

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.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 8 Solutions

Financial Accounting

Knowledge Booster
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • 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.
    On 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.
    On 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.
    Recommended textbooks for you
  • Principles of Accounting Volume 1
    Accounting
    ISBN:9781947172685
    Author:OpenStax
    Publisher:OpenStax College
    College Accounting (Book Only): A Career Approach
    Accounting
    ISBN:9781337280570
    Author:Scott, Cathy J.
    Publisher:South-Western College Pub
    Financial Accounting: The Impact on Decision Make...
    Accounting
    ISBN:9781305654174
    Author:Gary A. Porter, Curtis L. Norton
    Publisher:Cengage Learning
  • Auditing: A Risk Based-Approach (MindTap Course L...
    Accounting
    ISBN:9781337619455
    Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
    Publisher:Cengage Learning
    Century 21 Accounting Multicolumn Journal
    Accounting
    ISBN:9781337679503
    Author:Gilbertson
    Publisher:Cengage
    Century 21 Accounting General Journal
    Accounting
    ISBN:9781337680059
    Author:Gilbertson
    Publisher:Cengage
  • Principles of Accounting Volume 1
    Accounting
    ISBN:9781947172685
    Author:OpenStax
    Publisher:OpenStax College
    College Accounting (Book Only): A Career Approach
    Accounting
    ISBN:9781337280570
    Author:Scott, Cathy J.
    Publisher:South-Western College Pub
    Financial Accounting: The Impact on Decision Make...
    Accounting
    ISBN:9781305654174
    Author:Gary A. Porter, Curtis L. Norton
    Publisher:Cengage Learning
    Auditing: A Risk Based-Approach (MindTap Course L...
    Accounting
    ISBN:9781337619455
    Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
    Publisher:Cengage Learning
    Century 21 Accounting Multicolumn Journal
    Accounting
    ISBN:9781337679503
    Author:Gilbertson
    Publisher:Cengage
    Century 21 Accounting General Journal
    Accounting
    ISBN:9781337680059
    Author:Gilbertson
    Publisher:Cengage