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The following petty cash transactions of Green Golf Equipment occurred in May:

May 1 Established a petty cash fund with a \(200 balance.

31 The petty cash fund has \)18 in cash and \(180 in petty cash tickets that were issued to pay for Office Supplies(\)81), Delivery Expense (\(36), Postage Expense (\)54), and Miscellaneous Expense ($9).

The petty cash custodianreplenished the fund and recorded the expenses.

Prepare the journal entries.

Short Answer

Expert verified

The petty cash fund account is debited with $200, and the cash account is credited with $200.

Step by step solution

01

Definition of petty cash fund

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

02

Journal entries

Date

Particulars

Debit

Credit

May 1

Petty Cash Fund

$200

Cash

$200

(Being to for establishment of petty cash fund)

May 1

Office Supplies

$81

Delivery Expense

$36

Postage Expenses

$54

Miscellaneous Expense

$9

Cash Short & Over

$2

Cash

$182

(Entry for the replenishment of petty cash fund

The first entry is passed on recording the establishment of the petty cash fund.

The second entry is passed for the replenishment of the petty cash fund.

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Most popular questions from this chapter

What is internal control?

Question: How does the Sarbanes-Oxley Act relate to internal controls?

Match the accounting terminology to the definitions.

1. Sarbanes-Oxley Act

2. Internal control

3. Encryption

4. Separation of duties

5. Internal auditors

a. Organizational plan and all the related measures adopted by an entity to safeguard assets,

encourage employees to follow company policies, promote operational efficiency, and ensure

accurate and reliable accounting records.

b. Employees of the business who ensure that the companyโ€™s employees are following company

policies and meeting legal requirements and that operations are running efficiently.

c. Rearranging plain-text messages by a mathematical processโ€”the primary method of

achieving security in e-commerce.

d. Requires companies to review internal control and take responsibility for the accuracy and

completeness of their financial reports.

e. Dividing responsibilities between two or more people.

Controlling petty cash Just Hanginโ€™ Night Club maintains an imprest petty cash fund of \(150, which is under the control of Sandra Morgan. At March 31, the fund holds \)14 cash and petty cash tickets for office supplies, \(128, and delivery expense, \)15.

Requirements

1. Explain how an imprest petty cash system works.

2. Journalize the establishment of the petty cash fund on March 1 and the replenishing of the fund on March 31.

3. Prepare a T-account for Petty Cash and post to the account. What is the balance of the Petty Cash account at all times?

Levon Helm was a kind of one-person mortgage broker. He would drive around Tennessee looking for homes that had second mortgages, and if the criteria were favorable, he would offer to buy the second mortgage for โ€œcash on the barrelhead.โ€ Helm bought low and sold high, making sizable profits. Being a small operation, he employed one person, Cindy Patterson, who did all his bookkeeping. Patterson was an old family friend, and he trusted her so implicitly that he never checked up on the ledgers or the bank reconciliations. At some point, Patterson started โ€œborrowingโ€ from the business and concealing her transactions by booking phony expenses. She intended to pay it back someday, but she got used to the extra cash and couldnโ€™t stop. By the time the scam was discovered, she had drained the company of funds that it owed to many of its creditors. The company went bankrupt, Patterson did some jail time, and Helm lost everything

Requirements

  1. What was the key control weakness in this case?
  2. Many small businesses cannot afford to hire enough people for adequate separation of duties. What can they do to compensate for this?
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