Final answer:
The incorrect statement regarding the establishment of a petty cash fund is B, which incorrectly suggests debiting Cash and crediting Petty Cash. The correct entry debits Petty Cash and credits Cash, reflecting a reallocation within current assets.
Step-by-step explanation:
The student's question involves understanding the establishment of a petty cash fund and accounting for it. The statement that is incorrect is B: 'A journal entry is needed to debit the Cash account and credit the Petty Cash account for $600'. When a company establishes a petty cash fund, it does indeed affect the company's current assets. The petty cash fund is still part of the company's cash balance; it's just been allocated differently within current assets.
When establishing a petty cash fund, the correct journal entry would be to debit the Petty Cash account and credit the Cash account for $600. This reflects the movement of $600 from the company's main Cash account to a petty cash fund, which is used for minor business expenses. The total of current assets remains the same because while the Cash account decreases, the Petty Cash account increases by the same amount. Therefore, there is no net effect on current assets, making Statement A correct.
However, it's important to note that the sum of the cash on hand plus the total of the petty cash tickets should indeed always equal the balance of the petty cash fund, which is $600, as stated in Statement C. Statement D, which describes the physical transfer of funds into the petty cash box, is also correct.