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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Transactions for petty cash, cash short and over

Jeremiah Restoration Company completed the following selected transactions during January:

Jan. 1. Established a petty cash fund of $900.
12. The cash sales for the day, according to the cash register records, totaled $6,148. The actual cash received from cash sales was $6,180.
31. Petty cash on hand was $75. Replenished the petty cash fund for the following disbursements, each evidenced by a petty cash receipt:
Jan. 3. Store supplies, $470.
7. Express charges on merchandise sold, $55 (Delivery Expense).
9. Office supplies, $30.
13. Office supplies, $11.
19. Postage stamps, $55 (Office Supplies).
21. Repair to office file cabinet lock, $60 (Miscellaneous Administrative Expense).
22. Postage due on special delivery letter, $30 (Miscellaneous Administrative Expense).
24. Express charges on merchandise sold, $85 (Delivery Expense).
30. Office supplies, $14.
Jan. 31. The cash sales for the day, according to the cash register records, totaled $4,550. The actual cash received from cash sales was $4,536.
31. Decreased the petty cash fund by $200.

Instructions

Journalize the transactions.

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.

Explanation

Journal entry 1: Establish petty cash fund.

Date Account Title and Explanation Post Ref Debit ($) Credit ($)
January 1 Petty Cash 900
Cash 900
Open petty cash fund.

Explanation: 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.

Date Account Title and Explanation Post Ref Debit ($) Credit ($)
January 12 Cash 6,180
Cash Short and Over 32
Sales 6,148
(To record the cash sales.)

Explanation: 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.

Date Account Title and Explanation Post Ref Debit ($) Credit ($)
January 31 Store 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.

Explanation: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

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