Question

Nakashima Gallery had the following petty cash transactions in February of the current year..

Feb. 2 Wrote a $340 check, cashed it, and gave the proceeds and the petty cashbox to Chloe Addison, the petty cashier.
5 Purchased bond paper for the copier for $16.75 that is immediately used. 9 Paid $36.50 COD shipping charges on merchandise purchased for resale, terms FOB shipping point. Nakashima uses the
perpetual system to account for merchandise inventory. 12 Paid $6.95 postage to express mail a contract to a client.
14 Reimbursed Adina Sharon, the manager, $71 for business mileage on her car.
20 Purchased stationery for $66.77 that is immediately used.
23 Paid a courier $17 to deliver merchandise sold to a customer, terms FOB destination.
Paid $10.30 COD shipping charges on merchandise purchased for resale, terms FOB shipping point.
25 27 Paid $54 for postage expenses.
28 The fund had $23.28 remaining in the petty cash box. Sorted the petty cash receipts by accounts affected and exchanged them for a check to reimburse the fund for expenditures.
28 The petty cash fund amount is increased by $130 to a total of $470.

Required:
Prepare the journal entry to establish the petty cash fund_____

Answer 1

A petty cash fund is established with a debit to the Petty Cash account and a credit to the Cash account, identifying $340 set aside for small expenses. The journal entry should be dated when the fund was established, with no other transactions recorded until reimbursement.

Step-by-step explanation:

To establish a petty cash fund, the journal entry would involve a debit to the Petty Cash account and a credit to the Cash account. This entry recognizes that cash is being set aside for small, incidental purchases or expenses managed by the petty cashier. The establishment of a petty cash fund is an important procedure for maintaining control over minor cash transactions within a business. When the petty cash fund is created, the following journal entry is recorded:

Date: February 2

Account Titles Debit Credit

Petty Cash $340

Cash $340

This journal entry should be dated February 2, which is when the check was written, and it converts $340 from the company’s Cash account to the Petty Cash account. Subsequent transactions that occur throughout the month will not be recorded in the journal until the end of the month when the fund is reimbursed.