Question

On January 2, The Public Legal Clinic issued Check 2108 for $300 to establish a petty cash fund. Indicate how this transaction would be recorded in a general journal.

Answer 1

To record the establishment of a $300 petty cash fund by the Public Legal Clinic, a debit of $300 is made to the Petty Cash account, and a corresponding credit of $300 is made to the Cash account.

Step-by-step explanation:

When the Public Legal Clinic issued Check 2108 for $300 to establish a petty cash fund, the accounting transaction should be recorded in the general journal by making an entry to increase the Petty Cash account and to decrease the Cash account. The journal entry will look like this:

• Date: January 2
• Description: Petty Cash
• Debit: $300
• Credit: -
• Description: Cash
• Debit: -
• Credit: $300

The debit to the Petty Cash account increases the amount of currency that is readily available for small, incidental expenses, while the credit to the Cash account reduces the balance of the company's main cash account, reflecting the outlay of funds to establish the petty cash.