Concept explainers
(1)
Journalize the establishment of petty cash fund transaction on February 2, in the books of N Gallery.
(1)
Explanation of Solution
Petty cash fund: Petty cash fund is a fund established to pay insignificant amounts like postage, office supplies, and lunches.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
Journalize the establishment of petty cash fund transaction on February 2.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
February | 2 | Petty Cash | 400 | |||
Cash | 400 | |||||
(Record establishment of petty cash fund) |
Table (1)
Description:
- Petty Cash is an asset account. Since cash is deposited in the petty cash account, asset value is increased, and an increase in asset is debited.
- Cash is an asset account. The amount has decreased because cash is transferred to Petty Cash account. The asset is decreased, and a decrease in asset is credited.
2.
Prepare a petty cash report of N Gallery for the month of February.
2.
Explanation of Solution
Prepare a petty cash report of N Gallery for the month of February.
N Gallery | |||
Petty Cash Report | |||
For the Month of February | |||
Delivery Expense | |||
February 23 | Customer’s merchandise delivered | $20.00 | |
Mileage Expense | |||
February 14 | Reimbursed mileage on car | 68.00 | |
Postage Expense | |||
February 12 | Client’s contract delivered | $7.95 | |
February 27 | Purchase of postage stamps | 54.00 | 61.95 |
Merchandise Inventory (transportation-in) | |||
February 9 | Transport of merchandise purchased | 32.50 | |
February 25 | Transport of merchandise purchased | 13.10 | 45.60 |
Office Supplies Expense | |||
February 5 | Purchase of paper for copier | 14.15 | |
February 20 | Purchase of stationery | 67.77 | 81.92 |
Total | $277.47 |
Table (2)
3.
(a)
Journalize the reimbursement of petty cash fund transaction on February 28.
3.
(a)
Explanation of Solution
Journalize the reimbursement of petty cash fund transaction on February 28.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
February | 28 | Delivery Expense | 20.00 | |||
Mileage Expense | 68.00 | |||||
Postage Expense | 61.95 | |||||
Merchandise Inventory | 45.60 | |||||
Office Supplies Expenses | 81.92 | |||||
Cash Short and Over | 2.11 | |||||
Cash | 279.58 | |||||
(Record replenishment of petty cash fund) |
Table (3)
- Delivery Expense is an expense account. Expenses decrease value of stockholders’ equity account, and a decrease in equity is debited.
- Mileage Expense is an expense account. Expenses decrease value of stockholders’ equity account, and a decrease in equity is debited.
- Postage Expense is an expense account. Expenses decrease value of stockholders’ equity account, and a decrease in equity is debited.
- Merchandise Inventory is an asset account. Transportation-in charges are related to merchandise, so these expenses are charged to merchandise inventory in perpetual inventory system. Hence, value of asset is increased, and an increase in asset is debited.
- Office Supplies Expense is an expense account. Expenses decrease value of stockholders’ equity account, and a decrease in equity is debited.
- Cash Short and Over is a stockholders’ equity account. The increase (overage) is credited and decrease (shortage) is debited. Hence, debit Cash Short and Over account with $2.11 indicating less amount of cash balance.
- Cash is an asset account. Since the expenditures are recognized from petty cash fund petty cash is decreased, and a decrease in asset is credited.
Working Notes:
Calculate cash spent.
Calculate cash short and over amount.
Step 1: Calculate the total of expenses.
Particulars | Amount ($) |
Delivery Expense | 20.00 |
Mileage Expense | 68.00 |
Postage Expense | 61.95 |
Merchandise Inventory | 45.60 |
Office Supplies Expenses | 81.92 |
Total expenses | $277.47 |
Table (4)
Step 2: Calculate the cash and short over amount.
Note: Refer to Equation (1) and Table (4) for values and computations of amount of cash spent and total expenses.
(b)
Journalize the increase in petty cash fund transaction on February 28.
(b)
Explanation of Solution
Journalize the increase in petty cash fund transaction on February 28.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
February | 28 | Petty Cash | 100 | |||
Cash | 100 | |||||
(Record increased amount of petty cash fund) |
Table (5)
Description:
- Petty Cash is an asset account. Since cash of is deposited in the petty cash account, asset value is increased, and an increase in asset is debited.
- Cash is an asset account. The amount has decreased because cash is transferred to Petty Cash account. The asset is decreased, and a decrease in asset is credited.
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Chapter 8 Solutions
Principles of Financial Accounting.
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