Question

(Petty Cash, Bank Reconciliation) Bill Jovi is reviewing the cash accounting for Nottleman, Inc., a local mailing service. Jovi’s review will focus on the petty cash account and the bank reconciliation for the month ended May 31, 2017. He has collected the following information from Nottleman’s bookkeeper for this task.

Petty Cash

1. The petty cash fund was established on May 10, 2017, in the amount of \(250.

2. Expenditures from the fund by the custodian as of May 31, 2017, were evidenced by approved receipts for the following.

Postage expenses	\)33.00
Mailing Labels and Other Supplies	65.00
I.O.U from employees	30.00
Shipping charges	57.45
Newspaper advertising	22.80
Miscellaneous expenses	15.35

On May 31, 2017, the petty cash fund was replenished and increased to \(300; currency and coin in the fund at that time totaled \)26.40.

Bank Reconciliation

THIRD NATIONAL BANK
BANK STATEMENT
	Disbursements	Receipts	Balance
Balance 1 May, 2017			\(8,769
Deposits		\)28,000
Note payment direct from customer (\(30)		930
Check clearing during May	\)31,150
Bank service charges	27
Balance 31 May, 2017			6,522

Nottleman’s Cash Account
Balance 1 May 2017	\(8,850
Deposit during May 2017	31,000
Checks written during May 2017	(31,835)

Deposits in transit are determined to be \)3,000, and checks outstanding at May 31 total \(850. Cash on hand (besides petty cash) at May 31, 2017, is \)246.

Instructions

(a) Prepare the journal entries to record the transactions related to the petty cash fund for May.

(b) Prepare a bank reconciliation dated May 31, 2017, proceeding to a correct cash balance, and prepare the journal entries necessary to make the books correct and complete.

(c) What amount of cash should be reported in the May 31, 2017, balance sheet?

Short answer

$9,218 will be reported as cash in the company’s balance sheet.

Step-by-step solution

Definition of Petty Cash

A separate account maintained by a business entity for funding daily expenses of the business with small amounts such as refreshment, postage, and stationery is known as petty cash.

Journal entries relating to petty cash

Date	Accounts and Explanation	Debit $	Credit $
10 May 2017	Petty Cash	$250
	Cash		$250
31 May 2017	Postage expenses	$33.00
	Mailing Labels and Other Supplies	$65.00
	I.O.U from employees	$30.00
	Shipping charges	$57.45
	Newspaper advertising	$22.80
	Miscellaneous expenses	$15.35
	Cash		$223.60
31 May 2017	Petty Cash	$50
	Cash		$50

Bank Reconciliation Statement

Particular	Amount $	Amount $
Balance as per bank		$6,522
Add:
Cash in hand	$246
Deposit in transit	3,000	3,246
Less: Outstanding checks		(850)
		$8,918
Balance as per books$\left(\$8,850+\$31,000-\$31,835\right)$		8,015
Add: Note receivable		930
Less: Bank charges		(27)
Correct cash balance		$8918

Journal entries:

Date	Accounts and Explanation	Debit $	Credit $
31 May 2017	Cash	$930
	Note Receivable		$900
	Interest revenue		$30
31 May 2017	Bank charges	$27
	Cash		$27

Cash to be Reported on the Balance Sheet

Particular	Amount $
Correct cash balance	$8,918
Add: petty cash	300
Cash balance reported on the balance sheet	$9,218