Cactus Restoration Company completed the following selected transactions during May 2016:
Instructions
Journalize the transactions.
Journalize the petty cash transactions.
Explanation of Solution
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.
Journal entry 1: Establish petty cash fund.
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
October | 1 | Petty Cash | 750 | ||||
Cash | 750 | ||||||
Open petty cash fund. |
Description: Petty Cash is an asset and is increased by $750. Therefore, debit the Petty Cash account by $750. Cash is an asset and decreased by $750. Therefore, credit the Cash account by $750.
Journal entry 2: Record the cash sales.
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
October | 12 | Cash | 12,465 | ||||
Cash Short and Over | 25 | ||||||
Sales | 12,440 | ||||||
(To record the cash sales.) |
Description: Cash is an asset and is increased due to cash sales. Thus, cash is debited with $12,465. Therefore, debit Cash account by $12,465. Sales as per cash records are $12,465. Thus, sales is credited with $12,440. The difference of $25 is credited as Cash short and over.
Working note for determining cash short and over is as below:
Journal entry: Replenishment of funds.
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
October | 31 | Store Supplies | 390 | ||||
Delivery Expense | 90 | ||||||
Office Supplies | 56 | ||||||
Miscellaneous Administrative Expense | 42 | ||||||
Cash Short and Over | 15 | ||||||
Cash | 593 | ||||||
(To record the replenishment of the petty cash fund.) |
Description: Store supplies and Office Supplies is an asset and it increases the value of asset. Therefore, debit store supplies and office supplies by $390 and $56 respectively. Delivery Expense is an expense and it decreases the value of equity. Therefore, debit Delivery Expense by $90. Miscellaneous administrative expenses are an expense. It decreases the equity by $42. Thus, debit miscellaneous administrative expense with $42. Cash Short and Over decreases the value of equity. The cash is short by $15. Therefore, debit Cash Short and Over by $15. Cash is an asset and decreased by $593. Therefore, credit the cash account by $593.
Working notes for cash spent and cash short and over are provided below:
Calculate the cash spent as below:
Calculate the total payments.
Payments | Amount ($) |
Store Supplies | 390 |
Delivery Expense | 90 |
Office Supplies | 56 |
Miscellaneous Administrative Expense | 42 |
Total payments | 578 |
Next, calculate cash short and over.
Description: 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 2: Record the cash sales.
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
October | 31 | Cash | 18,780 | ||||
Cash Short and Over | 40 | ||||||
Sales | 18,820 | ||||||
(To record the cash sales.) |
Description: Cash is an asset and is increased due to cash sales. Thus, cash is debited with $18,780. Therefore, debit Cash account by $18,780. The difference of $40 and is debited. Sales as per cash records are $18,820. Thus, sales is credited with $18,820. Cash short and over is determined as follows:
Journal entry 1: Decrease in petty cash
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
October | 31 | Cash | 100 | ||||
Petty cash | 100 | ||||||
(Open petty cash fund.) |
Description: Cash is an asset and increased by $100. Therefore, debit Cash account with $100. Petty cash is an asset and decreased with $100. Thus, credit petty cash account with $100.
Want to see more full solutions like this?
Chapter 8 Solutions
Financial Accounting
- Marvin Company is a subsidiary of Hughes Corp. The controller believes that the yearly allowance for doubtful accounts for Marvin should be 8% of gross accounts receivable. Given the recession and the high interest rate environment, the president, nervous that the parent company might expect the subsidiary company to sustain its 10% growth rate, suggests that the controller increase the allowance for doubtful accounts to 9%. The president thinks that the lower net income, which reflects a 6% growth rate, will be a more sustainable rate for Marvin Company. On the basis of the case above: In a recessionary environment with tight credit and high interest rates, What steps Marvin Company might consider to improve the accounts receivable situation? Evaluate each step identified in terms of the risks and costs involved. Should the controller be concerned with Marvin Company's growth rate in estimating the allowance? Does the president's request pose an ethical dilemma for the controller?…arrow_forwardPlease provide answer this financial accounting questionarrow_forwardFinancial Accountingarrow_forward
- Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeCollege Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College Pub
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub