To replenish a petty cash fund. When the fund is replenished, the credit to Cash is for the difference between the established amount and the actual cash in the fund. We would debit all vouchered items. Any discrepancy should be debited or credited to an account called Cash Over and Short.
Why is a petty cash fund generally established?
The purpose of a petty cash fund is to make payments for small amounts that are immaterial, such as postage, minor repairs, or day-to-day supplies. A petty cash account is an imprest account, so it is only debited when the fund is initially established or increased in amount.
What is a good amount to have in a petty cash fund?
A petty cash fund between $100 and $500 is sufficient for many small businesses.
What is the transaction when you establish a petty cash fund?
The petty cash journal entry is a debit to the petty cash account and a credit to the cash account. The petty cash custodian refills the petty cash drawer or box, which should now contain the original amount of cash that was designated for the fund. The cashier creates a journal entry to record the petty cash receipts.
How to decrease the petty cash fund by$ 50?
To illustrate, the entry to decrease the petty cash fund by $50 would be: To decrease the size of the petty cash fund by $50. On the other hand, a petty cash fund may be too small, requiring replenishment every few days. The entry to record an increase in the fund debits Petty Cash and credits Cash for the amount of the increase.
How does a business establish a petty cash fund?
A business establishes a petty cash fund by writing a check for, say, $100. It is payable to the petty cash custodian. The petty cash fund should be large enough to make disbursements for a reasonable period, such as a month. The following entry records this transaction as follows: To establish a petty cash fund.
How are petty cash vouchers summarized and debited?
To determine which accounts to debit, an employee summarizes the petty cash vouchers according to the reasons for expenditure. The journal entry to record replenishing the fund would debit the various accounts indicated by the summary and credit Cash. For example, assume the $100 petty cash fund currently has a money balance of $7.40.
When to enter journal entries in petty cash fund?
One of the conveniences of the petty cash fund is that payments from the fund require no journal entries at the time of payment. Thus, using a petty cash fund avoids the need for making many entries for small amounts. Only when the fund is reimbursed, or when the end of the accounting period arrives, does the firm make an entry in the journal.
