Question

 Exercise 8-8 Petty cash fund with a shortage LO P2

 Waupaca Company establishes a $460 petty cash fund on September 9. On September 30, the fund shows $220 in cash along with receipts for the following expenditures: transportation-in, $49; postage expenses, $79; and miscellaneous expenses, $109. The petty cashier could not account for a $3 shortage in the fund. The company uses the perpetual system in accounting for merchandise inventory.

 Prepare (1) the September 9 entry to establish the fund, (2) the September 30 entry to reimburse the fund, and (3) an October 1 entry to increase the fund to $495.

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Answer 1

Petty cash is a small amount of cash that is kept on the company premises to pay for minor cash needs.. A separate accounting system is used to track petty cash transactions.

The journal entries are as follows

(i)Entry to establish the fund on September 9;

Petty cash. $460

To , cash . $460

(ii) entry to reimburse the fund on September 30

The shortage of $3 is minor which is immaterial to the results of financial statements.

The balance Amount being (460-220) 240$ is to be reimbursed.

Petty cash $240

To, cash . $240

The balance in the petty cash account is now $460, which is where it was originally authorized to be.

(iii) entry to increase the fund to 495 on October 1

Petty cash . $35

To, cash. $35

Inorder to increase the petty cash fund to $495, additional $35 (495-460) is introduced.