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Chapter 7: Q18E (page 417)

Controlling petty cash Just Hangin’ 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?

Short Answer

Expert verified

The cash account is credited with $136.

Step by step solution

01

Step-by-Step SolutionStep 1: Definition of delivery expense

The delivery expense means the expense that is paid for the delivery.

02

Imprest system

The imprest system is a system that is used to maintain the balance of the petty cash fund. In this, cash plus petty cash equals the petty cash fund balance. This system works by adding the cash plus petty cash tickets to check the petty cash fund accuracy. If there is any difference between the petty cash fund balance and cash plus petty cash fund, then the custodian is responsible for this. Hence, this is the working of the imprest petty cash system.

03

Journal entries for a petty cash fund

Date

Particulars

Debit

Credit

Petty Cash Fund

$150

Cash

$150

(Journal entry for the creation of petty cash fund)

Office Supplies

$128

Delivery Expenses

$15

Cash Short & Over

$7

Cash

$136

(Being journal entry for replenishing petty cash fund)

04

T-accounts


Petty Cash

Bal.

$150

Office supplies

$128

Delivery Expense

$15

End. Balance

$7

The balance of the petty cash is $7 all time.

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Most popular questions from this chapter

Preparing a bank reconciliation and journal entries

The December cash records of Davidson Insurance follow:


Davidson’s Cash account shows a balance of \(17,450 at December 31. On December

31, Davidson Insurance received the following bank statement:

Additional data for the bank reconciliation follow:

a. The EFT credit was a receipt of rent. The EFT debit was an insurance payment.

b. The NSF check was received from a customer.

c. The \)1,400 bank collection was for a note receivable.

d. The correct amount of check no. 1419, for rent expense, is \(1,930. Davidson’s

controller mistakenly recorded the check for \)1,390.

Requirements

1. Prepare the bank reconciliation of Davidson Insurance at December 31, 2018.

2. Journalize any required entries from the bank reconciliation.

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.

Correcting internal control weaknesses

Each of the following situations has an internal control weakness.

a. Upside-Down Applications develops custom programs to customers’ specifications.

Recently, development of a new program stopped while the programmers

redesigned Upside-Down’s accounting system. Upside-Down’s accountants could

have performed this task.

b. Norma Rottler has been your trusted employee for 24 years. She performs all cashhandling

and accounting duties. Norma just purchased a new luxury car and a new

home in an expensive suburb. As owner of the company, you wonder how she

can afford these luxuries because you pay her only $30,000 a year and she has no

source of outside income.

c. Izzie Hardwoods, a private company, falsified sales and inventory figures in order

to get an important loan. The loan went through, but Izzie later went bankrupt and

could not repay the bank.

d. The office supply company where Pet Grooming Goods purchases sales receipts

recently notified Pet Grooming Goods that its documents were not prenumbered.

Howard Mustro, the owner, replied that he never uses receipt numbers.

e. Discount stores such as Cusco make most of their sales in cash, with the remainder

in credit card sales. To reduce expenses, one store manager ceases purchasing

fidelity bonds on the cashiers.

f. Cornelius’s Corndogs keeps all cash receipts in an empty box for a week because

the owner likes to go to the bank on Tuesdays when Joann is working.

Requirements

1. Identify the missing internal control characteristics in each situation.

2. Identify the possible problem caused by each control weakness.

3. Propose a solution to each internal control problem.

Phoenix Restaurants accepts credit and debit cards as forms of payment. Assume Phoenix had $12,000 of credit and debit card

sales on June 30, 2017.

9. Suppose Phoenix’s processor charges a 2% fee and deposits sales net of the fee. Journalize the sale transaction for the

restaurant.

10. Suppose Phoenix’s processor charges a 2% fee and deposits sales using the gross method. Journalize the sale transaction for

the restaurant.

Preparing a bank reconciliation

Hardy Photography’s checkbook lists the following:

Date Check No. Item Check Deposit Balance

Nov. 1 \( 500

4 622 Quick Mailing \) 45 455

9 Service Revenue \( 135 590

13 623 Photo Supplies 85 505

14 624 Utilities 45 460

18 625 Cash 50 410

26 626 Office Supplies 110 300

28 627 Upstate Realty Co. 290 10

30 Service Revenue 1,235 1,245

Hardy’s November bank statement shows the following:

Learning Objective 6

1. Adjusted Balance \)1,137

Balance

Deposits

Checks: No. Amount

622 \( 45

623 85

624 105*

625 50

Other charges:

Printed checks

Service charge

Balance

*This is the correct amount for check number 624.

\) 500

135

(285)

(48)

$ 302

23

25

Requirements

1. Prepare Hardy Photography’s bank reconciliation at November 30, 2018.

2. How much cash does Hardy actually have on November 30, 2018?

3. Journalize any transactions required from the bank reconciliation.
See all solutions

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