
Concept explainers
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.
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.

Explanation of Solution
e.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Expenses | 420 | |||
Cash over and short | 5 | |||
Cash | 425 | |||
(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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Chapter 6 Solutions
Gen Combo Ll Financial Accounting Fundamentals; Connect Access Card
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