Question

E8-17 Accounting for petty cash Jackie's Dance Studio created a $220 imprest petty cash fund. During the month, the fund custodian authorized and signed petty cash tickets as follows: Petty Cash Ticket No. Item Account Debited Amount $ 20 10 25 40 70 1 Delivery of programs to customers Delivery Expense 2 Mail package Postage Expense Printing Expense Miscellaneous Expense Office Supplies Newsletter 4 Key to closet 5 Copier paper Requirements 1. Make the general journal entry to create the petty cash fund. Include an explanation. 2. Make the general journal entry to record the petty cash fund replenishment. Cash in the fund totals $40. Include an explanation 3. Assume that Jackie's Dance Studio decides to decrease the petty cash fund to $120. Make the general journal entry to record this decrease.

Answer 1

SOLUTION A Petty cash fund is a small amount of cash on hand that is used to play for day to day expenditures that are pretty in nature .This fund is established BY Transfering a small ampunt of cash from cash account to petty cash account. 1.Establishment of petty cash fund Establishment of petty cash fund with a$220 balance will increase the balance of petty cash and decrease the balance of cash by the same amount.Both petty cash and cah are assets Whenever a transaction increase the balance of an asset,it should be recorded by a debt to that asset and whenever,a transaction decreases the balance of an asset it should be prepared by debting petty cash crediting cash by $250 Account titles and Explanation Debit ($) Petty cash Cash (To establish petty cash fund) Credit ($) 220 220 2. Replenishment of of petty cash fund Replenishment of of petty cash fund is Recorded by debting all the expenses for which xash was paid from the petty cash fund and crediting cash The difference ,if any between the amount with which the petty cash fund was established at the beginning of the period and the sum of cash and petty cash tickets in the petty cash fund at the end of period ,is recorded as cash short and over The pett cash fund was established with a $220 balance. The petty cash fund has now $40 in casjh and $165 ($20+$10+$25+$40+S70) in petty cash tickets.the total of cash and petty cash tickets ,$205 (S40+$165) is S15 less than the amount with which the nd was established Therefore ,the journal entry to represents the petty cash fund should be recorded by debting the expense with their respective amounts ,debting cash short and over by $15 and crediting cash by $205 respectively

Debit ($) 20 10 25 40 70 15 Credit ($) Account titles and Explanation Delivery expense Postage expense Printing expense Miscellaneous expense Office Supplies Cash short and over cash (To replenish petty cash fund) 180 Note: in the above journal entry cash short and over is debited by$15 because the total of the cash and petty cash tickets is less than the amount with which the fund was established. Had the total of the cash and petty cash tickets been greater than the amount with which the fund was established.cash short and over would have been credited 3.Decrease in the balance of petty cash fund When the balance of the petty cash fund is decreased to $120 from $220,it will decrease the balance of petty cash by $100($220-$120) and increase the balance of cash by the same amount. Both petty cash and cash are assets Whenever, a transaction increases the balance of an asset, it should be recorded by a debit to that asset and whenever a transaction decreases the balance of an sheet it should be recorded by a credit to that asset Therefore the journal entry to record the decrease in the balance of petty cash fund should be prepared by debting cash and crediting petty cash by $100 Account titles and Explanation Debit ($) Credit (S) 100 Petty cash 100