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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
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.
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.
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