Question

Accounting for petty cash transactions

Suppose that on September 1, Cool Gyrations, a disc jockey service, create a petty

cash fund with an imprest balance of \(350. During September, Ruth Mangan, fund

custodian, signs the following petty cash tickets:

Petty Cash

Ticket Number Item Amount

1 Postage for package received \) 25

2 Office party 10

3 Two boxes of stationery 20

4 Printer cartridges 15

5 Business dinner 65

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

\(210. The accounts affected by petty cash payments are Office Supplies, Entertainment

Expense, and Postage Expense.

Requirements

1. On September 30, how much cash should this petty cash fund hold before it is

replenished?

2. Journalize all required entries to (a) create the fund and (b) replenish it. Include

explanations.

3. Make the entry on October 1 to increase the fund balance to \)425. Include an

Explanation

Short answer

The cash account is credited with $140 in the replenishment of the petty cash fund.

Step-by-step solution

Definition of the petty cash fund

The company has many small expenses and receipts to deal with these expenses. The company creates a petty cash fund.

Cash petty cash fund should hold

Fund Balance	$350
Less:
Postage and package	$25
Office party	$10
Two boxes of stationery	$20
Printer cartridges	$15
Business dinner	$65
Petty cash balance before replenishment	$135

Hence, the petty cash fund holds $135 before the replenishment.

Journal entries

Date	Particulars	Debit	Credit
September 1	Petty Cash Fund	$350
	Cash		$350
	(Journal entry for the creation of petty cash fund)
September 30	Postage and package	$25
	Office party	$10
	Two boxes of stationery	$20
	Printer cartridges	$15
	Business dinner	$65
	Cash Short & Over	$5
	Cash		$140
	(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 debited with $5 and the cash account credited with $140.

Balance in the petty cash fund increased

Date	Particulars	Debit	Credit
October 1	Petty Cash Fund	$425
	Cash		$425
	(Journal entry for the creation of petty cash fund)

The entry is passed to increase the balance of his petty cash fund. In this, the rise in the company the little cash fund by $425.