Chapter 6, Problem 6E

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: It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization’s financial health

Rules to pass journal entries:

• 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 of P Company to (1) Establish the fund on January 1 (2) Reimburse it on January 8 (3) Both reimburse the fund and increase it to $450 on January 8.