On May 1, a petty cash fund was established for $200.00. The following vouchers were issued during May:
| Date | Voucher | Purpose | Amount |
| :----- | :------ | :------------------------- | :----- |
| May 1 | 1 | Postage due | $3.60 |
| 3 | 2 | Office supplies | 10.00 |
| 5 | 3 | Auto repair (miscellaneous) | 45.00 |
| 7 | 4 | Drawing (Joy Adams) | 27.00 |
| 11 | 5 | Donation (Red Cross) | 12.00 |
| 15 | 6 | Travel expenses | 24.00 |
| 22 | 7 | Postage stamps | 3.40 |
| 26 | 8 | Phone call | 7.00 |
| 30 | 9 | Donation (Boy Scouts) | 18.00 |
Required:
1. Prepare the journal entry to establish the petty cash fund.
Page:
| DATE | ACCOUNT TITLE | DOC. POST. NO. REF. | DEBIT | CREDIT | |
| :-------- | :------------ | :------------------ | :------ | :------ | :--- |
| 1 20--May 1 | Petty Cash | | | | 1 |
| ? | | | | | 2 |
| 3 | Establish petty cash fund | | | | 3 |
| 4 | | | | | 4 |
Answer (2)
Debit Petty Cash for $200.00 .
Credit Cash for $200.00 .
Record the transaction in the journal.
The journal entry establishes the petty cash fund: Debit Petty Cash $200.00 , Credit Cash $200.00 .
Explanation
Understanding the Problem The problem requires us to prepare the journal entry to establish a petty cash fund. When a petty cash fund is established, the company debits the Petty Cash account and credits the Cash account.
Debiting Petty Cash To establish the petty cash fund, we need to debit the Petty Cash account for the amount of the fund, which is $200.00. This increases the balance of the Petty Cash account.
Crediting Cash We also need to credit the Cash account for the same amount, $200.00. This decreases the balance of the Cash account.
Journal Entry Therefore, the journal entry will be:
DATE
ACCOUNT TITLE
DOC. POST. NO. REF.
DEBIT
CREDIT
May 1, 20--
Petty Cash
$200.00
Establish petty cash fund
Examples
Setting up a petty cash fund is like creating a small emergency fund for a household. Imagine you decide to keep $200 in a secure box at home for small, unexpected expenses like postage, office supplies, or small repairs. To track this, you would record that you've moved $200 from your main bank account (cash) into this petty cash box. This journal entry helps businesses keep track of their funds, ensuring there's always a record of where the money is and how it's being used, just like you would track your household emergency fund.
To establish the petty cash fund of $200, debit 'Petty Cash' for $200 and credit 'Cash' for $200. This entry records the movement of cash from the main account to the petty cash fund. The journal entry format illustrates how the finances are balanced in accounting records.
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