Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

Accounting for petty cash transactions

On June 1, Fab Salad Dressings creates a petty cash fund with an imprest balance of

\(300. During June, Al Franklin, the fund custodian, signs the following petty cash tickets:

Petty Cash

Ticket Number Item Amount

101 Office supplies \) 30

102 Cab fare for executive 20

103 Delivery of package across town 50

104 Business dinner 40

105 Merchandise inventory 90

On June 30, before replenishment, the fund contains these tickets plus cash of \(90.

The accounts affected by petty cash payments are Office Supplies, Travel Expense,

Delivery Expense, Entertainment Expense, and Merchandise Inventory.

Requirements

1. Explain the characteristics and the internal control features of an imprest fund.

2. On June 30, how much cash should the petty cash fund hold before it isreplenished?

3. Journalize all required entries to create the fund and replenish it. Includeexplanations.

4. Make the July 1 entry to increase the fund balance to \)375. Include an explanationand briefly describe what the custodian does.

Short Answer

Expert verified

The cash account is credited with $210 in the replenishment of the petty cash fund.

Step by step solution

01

Definition of the petty cash fund

A petty cash fund is a fund that is created to meet small expenses.

02

Features and characteristics of an imprest fund

Feature of an imprest fund:

  1. Imprest fund is a small cash fund used to pay incidental expenses.
  2. The balance of the imprest fund is stored in the box or drawer.
  3. When the expense payment is made, the fundโ€™s cash is replaced with an expense voucher.

Characteristics of an imprest fund:

  1. The Imprest fund contains the same balance at all times. The balance of the imprest cannot be changed unless the amount allotted to the petty cash fund changes. During the transaction, the cash account is credited, and the balance of the imprest fund is not changed.
  2. During the payment of the incidental expense, the cash fund is replaced with the expense invoice. Due to this, the fund balance is equal to the tickets.
  3. As you know, the fundโ€™s balance cannot change unless the limit of the fund changes. The custodian has the information on the amount available in the fund for expenditures. This will help in fixing the responsibility,
03

Cash petty cash fund should hold

Fund Balance

$300

Less:

Office Supplies

$30

Delivery Expenses

$50

Cab fare

$20

Business Dinner

$40

Merchandise Inventory

$90

Petty cash balance before replenishment

$70

Hence, the petty cash fund holds $70 before the replenishment.

04

Journal entries

Date

Particulars

Debit

Credit

June 1

Petty Cash Fund

$300

Cash

$300

(Journal entry for the creation of petty cash fund)

June 30

Office Supplies

$30

Delivery Expenses

$50

Cab fare

$20

Business Dinner

$40

Merchandise Inventory

$90

Cash Short & Over

$20

Cash

$210

(Being journal entry for replenishing petty cash fund)

The first entry is passed for the creation of the petty cash fund.

In the second journal entry, the entry of the replenishment is passed in which the cash short& over the account is credited with $20 and the cash account credited with $210.

05

Balance in the petty cash fund increased

Date

Particulars

Debit

Credit

July 1

Petty Cash Fund

$375

Cash

$375

(Journal entry for the creation of petty cash fund)

The entry is passed to increase the balance of his petty cash fund.

A custodian is a person who keeps the receipt of expenses and presents these receipts to the supervisor. The following process is followed by the custodian to prove the accuracy of the petty cash fund.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Accounting for petty cash Jackieโ€™s Dance Studio created a \(220 imprest petty cash fund. During the month, the fund custodian authorized and signed petty cash tickets as follows: Petty Cash Ticket No. Item Account Debited Amount

1 Delivery of programs to customers Delivery Expense \) 20 2 Mail package Postage Expense 10 3 Newsletter Printing Expense 25 4 Key to closet Miscellaneous Expense 40 5 Copier paper Office Supplies 70

Requirements

1. Make the general journal entry to create the petty cash fund. Include an explanation.

2. Make the general journal entry to record the petty cash fund replenishment. Cash in the fund totals \(40. Include an explanation.

3. Assume that Jackieโ€™s Dance Studio decides to decrease the petty cash fund to \)120. Make the general journal entry to record this decrease.

Applying internal control over cash receipts by mail. Review the internal controls over cash receipts by mail presented in the chapter. Exactly what is accomplished by the final step in the process, performed by the controller?

What is separation of duties?

What are the steps taken to ensure control over purchases and payments by check?

Phoenix Restaurants accepts credit and debit cards as forms of payment. Assume Phoenix had $12,000 of credit and debit card

sales on June 30, 2017.

9. Suppose Phoenixโ€™s processor charges a 2% fee and deposits sales net of the fee. Journalize the sale transaction for the

restaurant.

10. Suppose Phoenixโ€™s processor charges a 2% fee and deposits sales using the gross method. Journalize the sale transaction for

the restaurant.

See all solutions

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free