Question

Palmona Company establishes a $310 petty cash fund on January 1. On January 8, the fund shows $205 in cash along with receipts for

the following expenditures: postage, $43; transportation-in, $14; delivery expenses, $16; and miscellaneous expenses, $32. Palmona
uses the perpetual system in accounting for merchandise inventory.
1. Prepare the entry to establish the fund on January 1.
2. Prepare the entry to reimburse the fund on January 8 under two separate situations:
a. To reimburse the fund.
b. To reimburse the fund and increase it to $360. Hint. Make two entries.

Answer 1

To establish the petty cash fund on January 1, debit Petty Cash and credit Cash for $310. To reimburse the fund on January 8, debit the appropriate expense accounts and credit Cash for the total amount. If the fund needs to be increased to $360, debit the appropriate expense accounts, debit Petty Cash for $60, and credit Cash for $60.

Step-by-step explanation:

To establish the petty cash fund on January 1, the company would make the following journal entry:

1. Debit Petty Cash $310
2. Credit Cash $310

To reimburse the petty cash fund on January 8, you would make the following journal entries:

1. For reimbursing the fund:

• Debit Postage Expense $43
• Debit Transportation-In Expense $14
• Debit Delivery Expenses $16
• Debit Miscellaneous Expenses $32
• Credit Cash $105

For increasing the fund to $360:

• Debit Postage Expense $33
• Debit Transportation-In Expense $4
• Debit Delivery Expenses $4
• Debit Miscellaneous Expenses $16
• Debit Petty Cash $60
• Credit Cash $60