Question

"If a petty cash fund is established in the amount of $300, and contains $180 in cash and $115 in receipts for disbursements when it is replenished, the journal entry to record replenishment should include credits to the following accounts:

a) Cash and Miscellaneous Expense.
b) Cash Over and Short and Miscellaneous Expense.
c) Petty Cash and Cash Over and Short.
d) Cash and Petty Cash."

Answer 1

The correct journal entry to replenish the petty cash fund includes credits to Cash Over and Short for $5 and Miscellaneous Expense for $115. These reflect the amounts spent and the discrepancy between cash on hand and the total disbursements accounted for by receipts.

Step-by-step explanation:

When the petty cash fund is replenished, the journal entry should reflect the cash put back into the fund and the expenses that have been paid out of it. The correct answer for the credits would be option b) Cash Over and Short and Miscellaneous Expense. Here's why:

In the scenario provided, the petty cash fund was established with $300. When it is time to replenish the fund, there is $180 in cash and $115 in receipts for disbursements. Thus, the total amount spent is $300 - $180 = $120. Since the receipts account for $115, there is a discrepancy of $120 - $115 = $5. This discrepancy is recorded in the Cash Over and Short account. Therefore, to replenish the fund, the entry would credit Cash Over and Short for $5 and Miscellaneous Expense for $115, with a debit to Cash for the total amount replenished, $120.