At the end of the month, the petty cash custodian reviews the receipts and finds that $250 has been spent, leaving only $250 in cash remaining in the petty cash box. A replenishment transaction is initiated by the petty cash custodian, who requests it from the accounting department. Replenishment is required periodically, as cash payments from the petty cash box are used to pay for incidental expenses. Please prepare a journal entry for petty cash replenishment. At the same time, it records the amount of petty cash that is used to pay for small expenses. The replenish will move the cash from other accounts to the petty cash account.
The company then makes a journal entry to debit the petty cash account and credit the main cash account. Giving the custodian more cash results in a journal entry that debits the petty cash fund and credits cash. This method ensures that the petty cash fund remains balanced and accurately reflects the company’s expenses without complicating the accounting entries. To establish a petty cash fund, a custodian is appointed, and a journal entry debits petty cash while crediting cash.
Notice that the Petty Cash account is not impacted — it was originally established as a base amount, and its balance has not been changed by virtue of this activity. As expenditures occur, cash in the box will be depleted. Policies should be established regarding appropriate expenditures that can be paid from petty cash. To illustrate, assume in the preceding example that the balance in the fund was only $6.10 instead of $7.40.
If receipts are not properly tracked and filed, it can be difficult to account for all of the expenses. Having petty cash on hand eliminates the need to constantly write cheques or use company credit cards for these small purchases. There is no entry to the Petty Cash account when merely replenishing the petty cash. It is important to realize that the $80 check will be credited to Cash (the company’s checking account).
What is petty cash and why is it used in businesses?
- The cash is typically kept in a locked box or drawer, and only a designated employee, usually the office manager or bookkeeper, has the key.
- The Cash Short (Over) account is an income statement type account.
- Assume that when the box iscounted, there are $45 in receipts and $25 in cash.
- When a disbursement is made from the fund, a receipt should be placed in the petty cash box.
- All in all, company petty cash can be a helpful tool for keeping businesses running smoothly.
- Upon review of the box,the balance is counted in the following way.
Mary will debit the accounts indicated on the petty cash vouchers and then debit Cash Short and Over for $1 (the amount that is not accounted for). She needs to obtain a company check for $80 in order to cash it and return the cash amount to $100 (the amount shown in the Petty Cash account). Pre-numbered vouchers help prevent unauthorized use of petty cash, and receipts provide a record of how the money was spent.
The company will use petty cash and it will keep decreasing to a low level. For these reasons, it is important to weigh the risks and benefits of using company petty cash before making a decision. All in all, company petty cash can accounts receivable job description be a helpful tool for keeping businesses running smoothly. Petty cash is a designated sum of money that is kept on hand for small, everyday expenses that may come up.
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For example, a retailer will compare daily cash sales to the actual cash found in the cash register drawers. The Cash Short (Over) account is an income statement type account. Whatever the cause, the available cash must be brought back to the appropriate level.
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- At the same time, it records the amount of petty cash that is used to pay for small expenses.
- Entries are needed to (1) establish the fund, (2) increase or decrease the balance of the fund (replenish the fund as cash is used), and (3) adjust for overages and shortages of cash.
- At all times, the employee responsible for petty cash is accountable for having cash and petty cash vouchers equal to the total amount of the fund.
- In this case,the petty cash balance is $70, when it should be $75.
- Once approved, accounting issues the reimbursement needed to restore the fund to its authorized balance.
- However, there are situations in which it is not practical to use a check.
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Petty cash replenishment occurs when funds are added to a petty cash box. Company ABC uses the petty cash for the expense amount $ 400 and the remaining balance is only $ 100. The staff has used petty cash to pay for the taxi $ 100, office supplies $ 200, and other expenses $ 100.
What is the process for replenishing a petty cash fund?
After the vouchers have been examined and approved, a check is created for $92.60 which restores the cash in the fund to its $100 balance. To determine which accounts to debit, an employee summarizes the petty cash vouchers according to the reasons for expenditure. At all times, the employee responsible for petty cash is accountable for having Three Types Of Cash Flow Activities cash and petty cash vouchers equal to the total amount of the fund. The custodian should prepare a voucher for each disbursement and staple any source documents (invoices, receipts, etc.) for expenditures to the petty cash voucher.
Occasionally, errors may occur that affect the balance of the petty cash account. If, for example, management of the Galaxy’s Best Yogurt decides to increase the petty cash balance to $100 from the current balance of $75, the journal entry to do this on August 1 would be as follows. Since the petty cash account is an imprest account, this balance will never change and will remain on the balance sheet at $75, unless management elects to change the petty cash balance. As this petty cash fund is established, the account titled “Petty Cash” is created; this is an asset on the balance sheet of many small businesses.
The accounting department issues a check for $250, bringing the petty cash fund back to its original balance of $500. The journal entry is debiting expense $ 400 and credit petty cash $ 400. The first journal entry is debiting expense (small expense) and credit petty cash.AccountDebitCreditExpense000Petty Cash000 Let’s assume that a company has a petty cash fund of $100 and its general ledger account Petty Cash has a debit balance of $100. This approach simplifies record-keeping and allows for efficient management of minor expenses, ensuring that the petty cash fund remains organized and accountable.
Instead, the custodian must keep track of all expenditures by retaining vendor receipts and using pre-numbered petty cash vouchers. To streamline the process of handling these minor costs, companies utilize a petty cash fund, which is a small cash reserve set aside for such purposes. Discrepancies in petty cash are managed using a cash over and short account, which reflects minor gains or losses.
If the management at a later date decides to decrease thebalance in the petty cash account, the previous entry would bereversed, with cash being debited and petty cash beingcredited. If the management at a later date decides to decrease the balance in the petty cash account, the previous entry would be reversed, with cash being debited and petty cash being credited. The second journal entry is debiting petty cash and credit cash on hand (any cash account).
If a petty cash account is consistently short, this may be awarning sign that there is not a proper control of the account, andmanagement may want to consider additional controls to bettermonitor petty cash. This createsa $5 shortage that needs to be replaced from the checking account.The entry to record a cash shortage is as follows. Occasionally, errors may occur that affect the balance of thepetty cash account. If, for example, management of the Galaxy’sBest Yogurt decides to increase the petty cash balance to $100 fromthe current balance of $75, the journal entry to do this on August1 would be as follows. As this petty cash fund is established, the account titled“Petty Cash” is created; this is an asset on the balance sheet ofmany small businesses. The journal entry to establish the petty cashfund would be as follows.
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