Question

Mountain Air Company established a $200 petty cash fund on January 1. From January 3 through 15, payments were made from the fund, as listed below. On January 17, the fund was replenished with a check for $158.

January 3—Paid cash for deliveries to customers—$43.
January 8—Paid cash to restaurant for catering office lunch—$83.
January 15—Paid cash for supplies—$32.

Record the establishment of petty cash.

Answer 1

Mountain Air Company established a $200 petty cash fund and recorded it by debiting the Petty Cash account and crediting Cash. Expenses were tracked and the fund was replenished with a check for $158, which represents the total expenditures from the petty cash.

Step-by-step explanation:

The establishment of petty cash involves the creation of a small amount of cash that is set aside for minor business expenses. In the scenario provided, Mountain Air Company sets up a $200 petty cash fund on January 1. This initial establishment involves a simple accounting entry debiting the Petty Cash account and crediting Cash for the amount of $200. These transactions establish the fund, but they also need to be replenished when the cash is used.

On January 17, the fund was replenished with a check for $158, meaning this is the total of the expenses paid out from the fund. These expenses included $43 for deliveries, $83 for catering, and $32 for supplies. To record the replenishment, Mountain Air Company would credit Cash and debit the appropriate expense accounts based on the nature of each expense. This is how petty cash transactions are handled and recorded in accounting.