Accounting for petty cash transactions

Suppose that on June 1, Rockin’ Gyrations, a disc jockey service, creates a petty cash

fund with an imprest balance of \(300. During June, Michael Martell, fund custodian,

signs the following petty cash tickets:

Petty Cash

Ticket Number Item Amount

1 Postage for package received \) 30

2 Office party 25

3 Two boxes of stationery 20

4 Printer cartridges 15

5 Business dinner 65

On June 30, prior to replenishment, the fund contains these tickets plus cash of \(140.

The accounts affected by petty cash payments are Office Supplies, Entertainment

Expense, and Postage Expense.

Requirements

1. On June 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. Includeexplanations.

3. Make the entry on July 1 to increase the fund balance to \)325. Include an explanation

Step by step solution

01

Definition of the petty cash fund

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

02

Cash petty cash fund should hold

Fund Balance	$300
Less:
Postage and package	$30
Office party	$25
Two boxes of stationary	$20
Printer Cartridges	$15
Business dinner	$65
Petty cash balance before replenishment	$145

Hence, the petty cash fund holds $145 before the replenishment.

03

Journal entries

Date	Particulars	Debit	Credit
June 1	Petty Cash Fund	$300
	Cash		$300
	(Journal entry for the creation of petty cash fund)
June 30	Postage and package	$30
	Office party	$25
	Two boxes of stationary	$20
	Printer Cartridges	$15
	Business dinner	$65
	Cash Short & Over	$
	Cash		$160
	(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 $160.

04

Balance in the petty cash fund increased

Date	Particulars	Debit	Credit
July 1	Petty Cash Fund	$325
	Cash		$325
	(Journal entry for the creation of petty cash fund)

This entry is passed to increase the fund balance of the petty cash fund.

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