Managing Petty Cash in Business

Nov 19, 2024

Principles of Accounting - Chapter 8, Part 1

Instructor: Jody Trana

Petty Cash Fund Overview

  • 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.

Tracking Petty Cash

  • 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.

Setting Up a Petty Cash Fund

  • 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.

Replenishing Petty Cash

  • 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

Example Problem: Pawnee Gaming Supplies

  1. Establishing Petty Cash (March 1):
    • Set up with $200 balance.
    • Journal Entry: Debit Petty Cash $200, Credit Cash $200.
  2. 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
  3. Increasing Petty Cash Fund (April 15):
    • Increase to $250.
    • Journal Entry: Debit Petty Cash $50, Credit Cash $50.

Key Takeaways

  • 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.