Fundamentals Of Financial Accounting
Fundamentals Of Financial Accounting
6th Edition
ISBN: 9781260159516
Author: PHILLIPS
Publisher: MCG
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Chapter 5, Problem 4CP

(1)

To determine

To journalize: The entries for the transactions (a) through (j)

(1)

Expert Solution
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.

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Prepare journal entry for the transaction (a).

Date Account Titles and Explanation Post. Ref. Debit ($) Credit ($)
    Petty Cash   300  
               Cash     300
    (To create petty cash fund)      

Table (1)

Description:

  • Petty Cash is an asset account. The asset is increased, and an increase in asset is debited.
  • Cash is an asset account. The amount has decreased because cash is transferred to Petty Cash account. The asset is decreased, and a decrease in asset is credited.

Prepare journal entry for the transaction (b).

Journal entries that are required for operation of petty cash fund are as follows:

  • While the petty cash fund is established
  • While the fund is replenished
  • While the amount in fund is increased or decreased

The transaction (b) is the payment made from the petty cash fund. Hence, no entry is required for the transaction.

Prepare journal entry for the transaction (c).

Journal entries that are required for operation of petty cash fund are as follows:

  • While the petty cash fund is established
  • While the fund is replenished
  • While the amount in fund is increased or decreased

The transaction (c) is the payment made from the petty cash fund. Hence, no entry is required for the transaction.

Prepare journal entry for the transaction (d).

Journal entries that are required for operation of petty cash fund are as follows:

  • While the petty cash fund is established
  • While the fund is replenished
  • While the amount in fund is increased or decreased

The transaction (d) is the payment made from the petty cash fund. Hence, no entry is required for the transaction.

Prepare journal entry for the transaction (e).

Date Account Titles and Explanations Ref. Debit ($) Credit ($)
    Supplies   50  
    Travel Expense   70  
    Office Expense   97  
              Cash     217
    (To record replenishment of petty cash fund)      

Table (2)

Description:

  • Supplies is an asset account. Since supplies are bought, asset value increased, and an increase in asset is debited.
  • TravelExpense is an expense account. Expenses decrease stockholders’ equity account and decrease in stockholders’ equity is debited.
  • Office Expense is an expense account. Expenses decrease stockholders’ equity account and decrease in stockholders’ equity is debited.
  • Cash is an asset account. Since the expenditures are recognized from petty cash fund, petty cash is decreased, and a decrease in asset is credited.

Prepare journal entry for the transaction (f).

Journal entries that are required for operation of petty cash fund are as follows:

  • While the petty cash fund is established
  • While the fund is replenished
  • While the amount in fund is increased or decreased

The transaction (f) is the payment made from the petty cash fund. Hence, no entry is required for the transaction.

Prepare journal entry for the transaction (g).

Journal entries that are required for operation of petty cash fund are as follows:

  • While the petty cash fund is established
  • While the fund is replenished
  • While the amount in fund is increased or decreased

The transaction (g) is the payment made from the petty cash fund. Hence, no entry is required for the transaction.

Prepare journal entry for the transaction (h).

Journal entries that are required for operation of petty cash fund are as follows:

  • While the petty cash fund is established
  • While the fund is replenished
  • While the amount in fund is increased or decreased

The transaction (h) is the payment made from the petty cash fund. Hence, no entry is required for the transaction.

Prepare journal entry for the transaction (i).

Date Account Titles and Explanations Ref. Debit ($) Credit ($)
    Travel Expense   75  
    Delivery Expense   147  
    Supplies   35  
              Cash     257
    (To record replenishment of petty cash fund)      

Table (3)

Description:

  • Travel Expense is an expense account. Expenses decrease stockholders’ equity account and decrease in stockholders’ equity is debited.
  • Delivery Expense is an expense account. Expenses decrease stockholders’ equity account and decrease in stockholders’ equity is debited.
  • Supplies is an asset account. Since supplies are bought, asset value increased, and an increase in asset is debited.
  • Cash is an asset account. Since the expenditures are recognized from petty cash fund, petty cash is decreased, and a decrease in asset is credited.

Prepare journal entry for the transaction (j).

Date Account Titles and Explanation Post. Ref. Debit ($) Credit ($)
    Petty Cash   300  
               Cash     300
    (To increase cash balance of petty cash fund)      

Table (4)

Description:

  • Petty Cash is an asset account. The asset is increased, and an increase in asset is debited.
  • Cash is an asset account. The amount has decreased because cash is transferred to Petty Cash account. The asset is decreased, and a decrease in asset is credited.

(2)

To determine

To mention: The amount to be reported as cash and cash equivalents

(2)

Expert Solution
Check Mark

Explanation of Solution

Cash: Cash is the money readily available in the form of currency. Since cash can be easily converted into other types of assets, it is reported as first item in the assets section as the most liquid asset.

Cash equivalents: Cash equivalents are the near-cash items, which are readily convertible into cash.  Cash equivalents have a maturity period of three months, or less than 3 months. Cash equivalents are reported along with cash in the assets section of the balance sheet, as ‘Cash and cash equivalents’.

Cash and cash equivalents:

Cash and Cash Equivalents
Cash in the bank $1,000
Petty cash 400
Treasury bills 500
      Total cash and cash equivalents $1,900

Table (5)

Note: $750 of cash set aside for legal purposes is restricted cash. So, do not include in cash and cash equivalents.

Conclusion
Hence, the amount of cash and cash equivalents is $1,900.

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Chapter 5 Solutions

Fundamentals Of Financial Accounting

Ch. 5 - Prob. 11QCh. 5 - Prob. 12QCh. 5 - Prob. 13QCh. 5 - Prob. 14QCh. 5 - Prob. 15QCh. 5 - Prob. 16QCh. 5 - What is the primary internal control goal for cash...Ch. 5 - Prob. 18QCh. 5 - Prob. 19QCh. 5 - Prob. 20QCh. 5 - Prob. 21QCh. 5 - Prob. 22QCh. 5 - Prob. 23QCh. 5 - Prob. 24QCh. 5 - Prob. 1MCCh. 5 - Prob. 2MCCh. 5 - Prob. 3MCCh. 5 - Prob. 4MCCh. 5 - Which of the following internal control principles...Ch. 5 - Prob. 6MCCh. 5 - Prob. 7MCCh. 5 - Prob. 8MCCh. 5 - Prob. 9MCCh. 5 - Prob. 10MCCh. 5 - Prob. 1MECh. 5 - Prob. 2MECh. 5 - Prob. 3MECh. 5 - Prob. 4MECh. 5 - Prob. 5MECh. 5 - Prob. 6MECh. 5 - Prob. 7MECh. 5 - Prob. 8MECh. 5 - Prob. 9MECh. 5 - Prob. 10MECh. 5 - Prob. 11MECh. 5 - Prob. 12MECh. 5 - Prob. 13MECh. 5 - Prob. 14MECh. 5 - Prob. 15MECh. 5 - Prob. 16MECh. 5 - Identifying Internal Control Principle and...Ch. 5 - Prob. 2ECh. 5 - Prob. 3ECh. 5 - Prob. 4ECh. 5 - Prob. 5ECh. 5 - Prob. 6ECh. 5 - Reporting Cash, Cash Equivalents, and Restricted...Ch. 5 - Prob. 8ECh. 5 - Prob. 9ECh. 5 - Prob. 10ECh. 5 - Prob. 1CPCh. 5 - Prob. 2CPCh. 5 - Prob. 3CPCh. 5 - Prob. 4CPCh. 5 - Prob. 1PACh. 5 - Prob. 2PACh. 5 - Prob. 3PACh. 5 - Prob. 4PACh. 5 - Prob. 1PBCh. 5 - Prob. 2PBCh. 5 - Prob. 3PBCh. 5 - Prob. 4PBCh. 5 - Recording Transactions and Adjustments,...Ch. 5 - Finding Financial Information Refer to the...Ch. 5 - Comparing Financial Information Refer to the...Ch. 5 - Ethical Decision Making: A Real-Life Example When...Ch. 5 - Ethical Decision Making: A Mini-Case You are an...Ch. 5 - Accounting for Cash Receipts, Purchases, and Cash...
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