Gen Combo Ll Financial Accounting Fundamentals; Connect Access Card
Gen Combo Ll Financial Accounting Fundamentals; Connect Access Card
7th Edition
ISBN: 9781260581256
Author: John Wild
Publisher: McGraw-Hill Education
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Chapter 6, Problem 1MCQ
To determine

Petty Cash System:

Petty cash system is a management of small cash transactions where payment of petty expenses is made out of it. It contains fixed balance which is maintained on monthly basis by the cashier.

Journal Entries:

Entries passed to record all the financial transactions in chronological manner are known as journal entries.

The rules to pass journal entries are,

  • Debit what comes in credit what goes out.
  • Debit all income, gains and credit all expenses, losses.
  • Debit the receiver and credit the giver.

To prepare: Journal entries to replenish petty cash fund.

Expert Solution & Answer
Check Mark

Explanation of Solution

e.

    DateAccount Title and ExplanationPost refDebit($)Credit($)
    Expenses420
    Cash over and short5
    Cash425
    (To replenish petty cash)

Table (1)

  • All expenses have debit balance. Expenses increase and get debited. So, expense account debited with $420.
  • $75 is in the cash box out of total petty cash fund $500. This implies $425 ($500-$75) should have spent. Since actual expenses are $420 and spent $425, difference of this $5 is debited to the ‘Cash over and short’ account.
  • Cash is an asset account. Cash has gone out of the bank so it is decreased. Hence, cash is credited with $425.

Hence, correct option is e.

a.

A debit to cash for $75 is not appropriate since cash has gone out of the bank and not received so; cash account is credited with $ 425 instead of debiting $75.

b.

Total of cash $425 has gone thus cash account should be credited with $425 instead of $75.

c.

Expenses are debited with $420 due to their payment out of petty cash. Thus credit to petty cash for $420 is inappropriate.

d.

Cash over and short account is debited with $5 instead of credited due to few less payment of expenses with $5.

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