Question

Accounting for petty cash transactions

On September 1, Party Salad Dressings creates a little cash fund with an imprest

balance of \(600. During September, Michael Martell, the fund custodian, signs the

following petty cash tickets:

Petty Cash

Ticket Number Item Amount

101 Office supplies \) 60

102 Cab fare for executive 25

103 Delivery of package across town 45

104 Business dinner 55

105 Merchandise inventory 75

On September 30, prior to replenishment, the fund contains these tickets plus cash

of \(355. 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 September 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. Include explanations.

4. Make the October 1 entry to increase the fund balance to \)800. Include an explanationand briefly describe what the custodian does.

Short answer

The cash account is credited with $245 in the replenishment of the petty cash fund.

Step-by-step solution

Definition of the petty cash fund

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

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 fund’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 fund’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,

Cash petty cash fund should hold

Fund Balance	$600
Less:
Office Supplies	$60
Delivery Expenses	$45
Cab fare	$25
Business Dinner	$55
Merchandise Inventory	$75
Petty cash balance before replenishment	$340

Hence, the petty cash fund holds $340 before the replenishment.

Journal entries

Date	Particulars	Debit	Credit
September 1	Petty Cash Fund	$600
	Cash		$600
	(Journal entry for the creation of petty cash fund)
September 30	Office Supplies	$60
	Delivery Expenses	$45
	Cab fare	$25
	Business Dinner	$55
	Merchandise Inventory	$75
	Cash Short & Over		$15
	Cash		$245
	(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 $15 and the cash account credited with $245.

Balance in the petty cash fund increased

Date	Particulars	Debit	Credit
October 1	Petty Cash Fund	$800
	Cash		$800
	(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.