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Chapter 7: Q17E (page 416)

Accounting for petty cash Jackie’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 Jackie’s Dance Studio decides to decrease the petty cash fund to \)120. Make the general journal entry to record this decrease.

Short Answer

Expert verified

The amount of cash short & over is $15.

Step by step solution

01

Step-by-Step SolutionStep 1: Definition of petty cash fund

The petty cash fund is the fund that is used to pay a small number of expenses.

02

Journal entry for creating petty cash fund

Date

Particulars

Debit

Credit

Petty Cash Fund

$220

Cash

$220

(Being journal entry to create petty cash fund)

03

Journal entry for replenishing the petty cash fund

Date

Particulars

Debit

Credit

Delivery Expense

$20

Postage Expense

$10

Printing Expense

$25

Misc. Expense

$40

Office Supplies

$70

Cash short & over

$15

Cash

$190

(Being journal entry for the replenishing of the petty cash fund)

04

Journal entry for decreasing the amount of petty cash fund

Date

Particulars

Debit

Credit

Cash

$120

Petty Cash Fund

$120

(Being journal entry for decreasing the petty cash fund)

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Most popular questions from this chapter

What is internal control?

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 company’s employees are following company

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

c. Rearranging plain-text messages by a mathematical process—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.

Preparing a bank reconciliation and journal entries

This problem continues the Canyon Canoe Company situation from Chapter 6.

Canyon Canoe Company has decided to open a new checking account at River

Nations Bank during March 2019. Canyon Canoe Company’s March Cash T-account

for the new cash account from its general ledger is as follows:

Cash—River Nations Bank Checking Account

Balance

Deposit

Deposit

Deposit

Deposit

200

4,300

750

1,675

1,500

14,165

Mar. 1

2

13

20

27

Deposit

10,000

2,325

2,750

4,500

31 3,490

Mar. 2

4

9

14

21

Ck#101

Ck#102

Ck#103

Ck#104

Ck#105

175

300

28

30

Ck#106

Ck#107

Balance

Canyon Canoe Company’s bank statement dated March 31, 2019, follows:

Beginning Balance, March 1, 2019

Deposits and other credits:

Mar. 2

14

21

28

29 EFT Sport Shirts(1)

(1) Sport Shirts is a customer making a payment on account.

(2) Bank Checks is a company that prints business checks (considered

a bank expense) for Canyon Canoe Company

\(10,000

2,325

2,750

4,500

500

Checks and other debits:

Mar. 2 EFT to Bank Checks(2)

Ending balance, March 31, 2019

\) 0

31 Interest Revenue 45

3 Ck#101

6 Ck#102

15 Ck#104

16 Ck#103

55

200

4,300

1,675

750

28 EFT to Rivers Energy(3) 270

29 Ck#106 175

31 Bank service charge 70

20,120

(7,495)

$ 12,625

(3) Rivers Energy is a utility provider.

Requirements

1. Prepare the bank reconciliation at March 31, 2019.

2. Journalize any transactions required from the bank reconciliation.

3. Compute the adjusted account balance for the Cash T-account, and denote thebalance as End. Bal. Does the adjusted balance of the Cash T-account match theadjusted book balance on the bank reconciliation?

Journalizing petty cash

Prepare the journal entries for the following petty cash transactions of Everly Gaming

Supplies:

March 1 Established a petty cash fund with a \(250 balance.

31 The petty cash fund has \)24 in cash and \(235 in petty cash tickets

that were issued to pay for Office Supplies (\)35) and Entertainment

Expense (\(200). Replenished the fund and recorded the expenditures.

April 15 Increased the balance of the petty cash fund to \)300.

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 “cash on the barrelhead.” 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 “borrowing” 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 couldn’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?
See all solutions

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