Financial And Managerial Accounting
Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Chapter 7, Problem 2PA
To determine

Journalize the petty cash transactions.

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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 ($)Credit ($)
July1Petty Cash  1,100 
   Cash   1,100
    Open petty cash fund.   

Table (1)

Petty Cash is an asset and is increased by $1,100. Therefore, debit the Petty Cash account by $400. Cash is an asset and decreased by $1,100. Therefore, credit the Cash account by $1,100.

Journal entry 2: Record the cash sales.

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
July12Cash 8,220 
   Cash Short and Over   28
   Sales   8,192
    (To record the cash sales.)   

Table (2)

Cash is an asset and is increased due to cash sales. Thus, cash is debited with $8,220. Therefore, debit Cash account by $8,220. Sales as per cash records are $8,192. Thus, sales is credited with $8,192. The difference of $28 is credited with $28. Cash short and over is determined as follows:

Cash short and over = Cash – Sales= $8,220 – $8,192=$28

Journal entry: Replenishment of funds.

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
July 31Store Supplies 580 
  Delivery Expense 225 
  Office Supplies 140 
  Miscellaneous Administrative Expense 88 
  Cash Short and Over 20 
   Cash  1,053
    To record the replenishment of the petty cash fund.   

Table (3)

Store supplies and Office Supplies is an asset and it increases the value of asset. Therefore, debit store supplies and office supplies by $580 and $140 respectively. Delivery Expense is an expense and it decreases the value of equity. Therefore, debit Delivery Expense by $225. Miscellaneous administrative expenses is an expense and decreases the equity by $88. Thus, debit miscellaneous administrative expense with $88. Cash Short and over decreases the value of equity. The cash is short by $20. Therefore, debit Cash short and Over by $20. Cash is an asset and decreased by $1,053. Therefore, credit the cash account by $1,053.

Working note 1: Calculate the cash spent as below:

Cash spent= (Petty cash fundAmount in petty cash fund after expenses)=$1,100$47=$1,053

Working note2: Calculate the total payments.

PaymentsAmount ($)
Store Supplies580
Delivery Expense225
Office Supplies140
Miscellaneous Administrative Expense88
Total payments1,033

Table (4)

Working note3: Next, calculate cash short and over.

Cash short and over = Total cash payments – Cash =$1053$1033=($20)

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.  Office supplies include amount spent for two boxes of stationery, and printer cartridges. Entertainment expense include office party and dinner expenses.

Journal entry 2: Record the cash sales.

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
July12Cash 10,232 
  Cash Short and Over 9 
   Sales   10,241
    (To record the cash sales.)   

Table (5)

Cash is an asset and is increased due to cash sales. Thus, cash is debited with $10,232. Therefore, debit Cash account by $10,232. The difference of $9 and is debited.  Sales as per cash records are $10,241. Thus, sales is credited with $10,241. Cash short and over is determined as follows:

Cash short and over = Cash – Sales= $10,232 – $10,241=$9

Journal entry 1: Decrease in petty cash

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
July1Cash  150 
   Petty cash   150
    Open petty cash fund.   

Table (6)

Petty Cash is an asset and is increased by $1,100. Therefore, debit the Petty Cash account by $400. Cash is an asset and decreased by $1,100. Therefore, credit the Cash account by $1,100.

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Students have asked these similar questions
On July 1 AAA Company established a petty cash fund with $200. During the first 15 days of July several payments totaling $192 were made for miscellaneous expenses using the petty cash fund. On July 15 replenishment of the fund was requested. at of Required 1) Prepare the necessary journal entry on July 1. DATE ACCOUNT TITLES DEBIT CREDIT July 1 $ 2) Prepare the necessary journal entry on July 15, in the following scenarios: a) cash balance on July 15 was $5. July 15 $ 2$ b) cash balance on July 15 was $8. DATE ACCOUNT TITLES DEBIT CREDIT July 15 24 $
Journalize the entries to record the following (refer to the Chart of Accounts for exact wording of account titles): a. On July 1, check No. 12-375 issued to establish a petty cash fund of $1,080. b. The amount of cash in the petty cash fund which is now $125. Check No. 12-476 is issued to replenish the fund, based on the following summary of petty cash receipts: office supplies, $589; miscellaneous selling expense, $190; miscellaneous administrative expense, $150. (Because the amount of the check to replenish the fund plus the balance in the fund do not equal $1,080, record the discrepancy in the cash short and over account.)
Journalize the entries to record the following (refer to the Chart of Accounts for exact wording of account titles): A. On July 1, check No. 12-375 is issued to establish a petty cash fund of $1,125. B. The amount of cash in the petty cash fund is now $122. Check No. 12-476 is issued to replenish the fund, based on the following summary of petty cash receipts: office supplies, $594; miscellaneous selling expense, $216; miscellaneous administrative expense, $168. (Because the amount of the check to replenish the fund plus the balance in the fund do not equal $1,125, record the discrepancy in the cash short and over account.)     Chart of Accounts     CHART OF ACCOUNTS   General Ledger   ASSETS 110 Cash 111 Petty Cash 120 Accounts Receivable 131 Notes Receivable 132 Interest Receivable 141 Merchandise Inventory 145 Office Supplies 146 Store Supplies 151 Prepaid Insurance 181 Land 191 Office Equipment 192 Accumulated…
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