Concept explainers
(1)
To journalize: The entries for the transactions (a) through (j)
(1)

Explanation of Solution
Petty cash fund: Petty cash fund is a fund established to pay insignificant amounts like postage, office supplies, and lunches.
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 mention: The amount to be reported as cash and cash equivalents
(2)

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
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.
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Chapter 5 Solutions
FUNDAMENTALS OF FINANCIAL ACCOUNTING LL
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