Principles of Accounting - Chapter 8, Part 1

Instructor: Jody Trana

Purpose: Used to handle small expenses in a business without the need for checks or electronic transfers.
- Examples include small office supplies, treats, or minor delivery expenses.
Traditionally, a cash box is used, but electronic systems are also applicable.

Methods:
- Petty cash tickets: documents who spent the money, the purpose, and the account to debit.
- Receipts: companies may use receipts to track expenses.
Impressed System:
- The general ledger account for petty cash remains constant.

Example: Smart Touch Learning sets up a petty cash fund of $200 on August 1.
- Journal Entry: Debit Petty Cash $200, Credit Cash $200.
- Petty Cash account is only debited/credited when adjusting the amount.

Example:
- Total of tickets: $80.
- Cash in box: $118.
- Discrepancy: $2 short.
- Journal Entry to Replenish:
  - Debit Office Supplies $60
  - Debit Delivery Expense $20
  - Debit Cash Short and Over $2
  - Credit Cash $82

Establishing Petty Cash (March 1):
- Set up with $200 balance.
- Journal Entry: Debit Petty Cash $200, Credit Cash $200.
Replenishing Petty Cash (March 31):
- Cash in box: $19, Tickets: $188 (Office Supplies $68, Entertainment $120).
- Replenish to $200:
  - Need $181 cash added.
  - Journal Entry:
    - Debit Office Supplies $68
    - Debit Entertainment Expenses $120
    - Credit Cash $181
    - Credit Cash Short and Over $7
Increasing Petty Cash Fund (April 15):
- Increase to $250.
- Journal Entry: Debit Petty Cash $50, Credit Cash $50.

Petty cash management involves setting up, replenishing, and adjusting the cash balance as needed.
The impressed system requires the petty cash account balance to remain unchanged unless adjusted for specific reasons.
Discrepancies in petty cash balances use the Cash Short and Over account for adjustments.