
Concept explainers
Petty cash fund: Petty cash fund is a fund established to pay insignificant amounts like postage, office supplies, and lunches. In day-to-day life, it becomes difficult to use checks for daily expenses. Therefore, companies maintain some minimum amount of funds in the hand for such daily expenses. These funds are called as petty cash funds. These funds are managed by custodian. This system is otherwise called as imprest system.
To journalize: The petty cash transactions.

Explanation of Solution
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
January | 1 | Petty Cash | 1,000 | ||||
Cash | 1,000 | ||||||
Open petty cash fund. |
Table -1
Petty Cash is an asset and is increased by $1,000. Therefore, debit the Petty Cash account by $1,000. Cash is an asset and decreased by $1,000. Therefore, credit the Cash account by $1,000.
Journal entry 2: Record the cash sales.
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
January | 12 | Cash | 9,506 | ||||
Cash Short and Over | 66 | ||||||
Sales | 9,440 | ||||||
(To record the cash sales.) |
Table -2
Cash is an asset and is increased due to cash sales. Thus, cash is debited with $9,506. Therefore, debit Cash account by $9,506. Sales as per cash records are $9,440. Thus, sales is credited with $9,440. The difference of $66 is credited with $66. Cash short and over is determined as follows:
Journal entry 3: Replenishment of funds.
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
January | 30 | Store Supplies | 375 | ||||
Merchandise inventory | 215 | ||||||
Office Supplies | 208 | ||||||
Miscellaneous Administrative Expense | 134 | ||||||
Cash Short and Over | 22 | ||||||
Cash | 954 | ||||||
To record the replenishment of the petty cash fund. |
Table -3
Store supplies and Office Supplies is an asset and it increases the value of asset. Therefore, debit store supplies and office supplies by $375 and $208 respectively. Merchandise inventory is an asset and it increases the value of equity. Therefore, debit Merchandise inventory by $215. Miscellaneous administrative expenses are an expense. It decreases the equity by $134. Thus, debit miscellaneous administrative expense with $134. Cash Short and Over decreases the value of equity. The cash is short by $22. Therefore, debit Cash Short and Over by $22. Cash is an asset and decreased by $954. Therefore, credit the cash account by $954.
Working notes for cash spent and cash short and over are provided below:
Calculate the cash spent as below:
Calculate the total payments.
Payments | Amount ($) |
Store Supplies | 375 |
Merchandise inventory | 215 |
Office Supplies | 208 |
Miscellaneous Administrative Expense | 134 |
Total payments | 932 |
Table -4
Next, calculate cash short and over.
Determining of petty cash before replenishment involves two steps. First, calculate the total payments. Then determine the difference between imprest balance and total payments. This amount is petty cash fund before replenishment.
Journal entry 4: Record the cash sales.
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
June 30 | Cash | 13,350 | |||||
Cash Short and Over | 40 | ||||||
Sales | 13,390 | ||||||
(To record the cash sales.) |
Table -5
Cash is an asset and is increased due to cash sales. Thus, cash is debited with $13,350. Therefore, debit Cash account by $13,350. The difference of $40 and is debited. Sales as per cash records are $13,390. Thus, sales is credited with $13,390. Cash short and over is determined as follows:
Journal entry 5: Decrease in petty cash
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
July | 1 | Cash | 200 | ||||
Petty cash | 200 | ||||||
Open petty cash fund. |
Table -6
Cash is an asset and increased by $200. Therefore, debit Cash account with $200. Petty cash is an asset and decreased with $200. Thus, credit petty cash account with $200.
Want to see more full solutions like this?
Chapter 7 Solutions
Financial & Managerial Accounting 14th Ed. W/ PAC LMS Intg CNOWv2 2S
- The ending balance in the account Prepaid Insurance is expected to report which of the following? The Accrued Amount Of Insurance Expense The Original Amount Of The Insurance Premiums Paid The Expired Portion Of The Insurance Premiums Paid The Unexpired Portion Of The Insurance Premiums Paidarrow_forwardThe adjusting entry that reduces the balance in Deferred Revenues or Unearned Revenues will also include which of the following? A Debit To Cash A Credit To Fees Earned A Debit To Fees Earned A Credit To Fees Receivablearrow_forwardThe adjusting entry that reduces the balance in Prepaid Insurance will also include which of the following? A Credit To Cash A Credit To Insurance Expense A Debit To Insurance Expense A Debit To Insurance Payablearrow_forward
- Which of the following will be included in the adjusting entry to accrue interest expense? A Debit To Cash A Credit To Interest Payable A Debit To Interest Payable A Debit To Prepaid Interestarrow_forwardIn the case of a company's accrued interest expense, which of the following occurs first? Incurring The Interest Expense Paying The Interest To The Lenderarrow_forwardWhat type of accounts are Accumulated Depreciation and Allowance for Doubtful Accounts? Contra Asset Equity Expense Liability Revenuearrow_forward
- What type of accounts are Prepaid Insurance, Prepaid Advertising, and Prepaid Expenses? Asset Liability Equity Revenue Expensearrow_forwardWhat type of accounts are Interest Receivable and Fees Receivable? Asset Liability Equity Revenue Expensearrow_forwardThe first section of the statement of cash flows pertains to __________activities.arrow_forward
- The statement of cash flows explains the changes in cash and cash __________ during the specified time interval.arrow_forwardThe non-government organization that researches and develops new accounting standards is the __________. AICPA FASB IRS SECarrow_forwardProvide correct solution and accountingarrow_forward
- Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningCollege Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College PubCentury 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,College Accounting (Book Only): A Career ApproachAccountingISBN:9781305084087Author:Cathy J. ScottPublisher:Cengage LearningFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,




