[Music] in this video we're going to be talking about another internal control called petty cash and what it's used for and how companies would um journalize transactions that come from petty cash petty cash is used as a control for cash because it's cash that you have on hand that you can use to pay for small expenditures like maybe have a little cash um zipper pouch or something like that where you keep $200 or or something like that then you can go and pay for small things small office supplies or that type of thing where you don't have access to a large amount of cash at any one time controls that you can still have over the petty cash fund are things like a custodian so one person would be assigned that controls this petty cash and and reviews all the tickets there's also something called an impressed system that Ty typically um petty cash will follow the impress system simply means when it has if you have a petty cash fund that has $200 in the fund it stays at $200 so when transactions affect the petty cash fund they're actually affecting cash not petty cash and we'll see what that transaction looks like here in just a second also in the petty cash fund when money is paid with from cash then there should be a ticket in that power or or box or whatever the money is kept in that signifies money was was used to purchase something so the first thing we have to do when we're interested in using a petty cash fund is to establish the fund so you determine what amount you want held in the petty cash fund 200 300 500 a th000 whatever the case may be and you make a transaction so the money is going to come out of your cash account and into the petty cash fund or petty cash so the transaction would look like this we're going to credit the cash account and for whatever the amount is and we're going to debit the petty cash fund or petty cash for that same amount now we have effectively created the pity cash fund so now that we've established the pity cash fund we can actually start making um purchases from that fund so for example here we have a Pity cash or receipt bag that has $78 in cash and it shows tickets or receipts for delivery expense of $22 postage postage EXP expense for $42 supplies expense for $42 and miscellaneous expenses of $16 the original balance was 200 so for me the easiest way to to to journalize a transaction based on these expenses is to say well I started with $200 and I only have $78 left so I'm going to have to put back in my bag $122 that's how much cash no matter what the receipts add up to I've got to get $12 $22 back in that bag that's because it's an impressed system it has to stay at $200 at all times so that $122 is going to come out of my cash account I'm going to credit cash for $122 and now I'm just going to list all those expenses and record them in my books delivery expense postage supplies and miscellaneous in this case we're happy because they actually all add up to $122 so everything seems to be to be fine but what I want you to note here is there is no entry in this journal this journal entry made to petty cash so the only time you will see a journal entry made to petty cash is when you create it or if you ever change the balance that's in it notice we are crediting petty cash we don't credit I mean we credit cash we do not credit petty cash okay so keep that in mind it's an impressed system but what happens if the cash receipts in the bag don't match um the cash that's missing then what do we do well here we have this a different little scenario here we still have $78 in cash and we're supposed to have2 200 then we have our expenses so we the same scenario we still know we're going to have to credit cash for $122 that's how much we need to put back in our bag however when we look at the the expenses that we've got here they only add up to $120 so we actually need a debit of $2 to make this journal entry balance and this is called Cash short and over okay so it can be a debit or a credit to cash short and over in this particular instance we need a debit okay so what happens here is it acts like an expense it's short our bag was short so if you have a balance in your cash shorten over account at the end of the period and it's a debit balance that's going to act like an expense on the income statement if your cash shorten over has a credit balance it's going to act like a revenue well let's take one more example here we have our petty cash fund once again we have $78 in cash and it's supposed to be $200 so we know once again that we're going to have to credit cash for $122 but when we look at our expenses they actually add up to $124 our receipts so in this case we're actually over so we need a credit in this case to make it balance to get that credit side up to $124 so at this instance since if these were two different transactions our cash short and over balance would now have a zero balance which is technically what we want to happen don't forget if you enjoyed 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