Chapter 5, Problem 5.4CP

(1)

To determine

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

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

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.