Question

Palmona Co. establishes a $200 petty cash fund on January 1. On January 8, the fund shows $38 in cash along with receipts for the following expenditures: postage, \(74; transportation-in, \)29; delivery expenses, \(16; and miscellaneous expenses, \)43. Palmona uses the perpetual system in accounting for merchandise inventory. Prepare journal entries 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, assuming no entry in part 2. (Hint: Make two separate entries for part 3.)

Short answer

Answer

2. Petty cash is debited by $200, and cash is credited by $200.

3. The remaining cash balance in the Petty Cash is $38, and the total expenses amounted to $162.

4. The petty cash fund was created with $200, and to increase the fund to $450, $250 needs to be debited in the Petty cash account.

Step-by-step solution

Step-by-Step SolutionStep 1: Introduction to topic

Cash accounting:Cash accounting is an accounting method where payments and receipts are recorded during the period on a cash basis, not on an accrual basis. It means if the payments and receipts are paid or received, it is recorded.

Journal of case 1

Date	Transactions	Debit($)	Credit($)
Jan 1	Petty Cash	200
	Cash		200
	To record establishment of funds

Journal of case 2

Date	Transactions	Debit($)	Credit($)
Sep 30	Postage expense	74
	Merchandise Inventory	29
	Delivery expenses	16
	Miscellaneous expenses	43
	Cash		162
	To record reimbursement of the fund.

Journals of case 3

Date	Transactions	Debit($)	Credit($)
Jan 8	Postage expense	74
	Merchandise Inventory	29
	Delivery expenses	16
	Miscellaneous expenses	43
	Cash		162
	To record reimbursement of the fund.

Date	Transactions	Debit($)	Credit($)
Jan 8	Petty Cash	250
	Cash		250
	To record increase in fund