Question

Palmona Co. establishes a $230 petty cash fund on January 1. On January 8, the fund shows $131 in cash along with receipts for the following expenditures:

Postage, $44
Transportation-in, $13
Delivery expenses, $15
Miscellaneous expenses, $33
Palmona uses the perpetual system in accounting for merchandise inventory.

Required:

Prepare journal entry to establish the fund on January 1, reimburse it on January 8, and reimburse the fund and increase it to $330 on January 8, assuming no entry in part 2.

Answer 1

To establish and adjust a petty cash fund, journal entries are made to debit the Petty Cash account and credit the Cash account. Expenditures are reimbursed by debiting appropriate expense accounts and crediting Cash. To increase the fund, a separate entry debits Petty Cash and credits Cash.

Step-by-step explanation:

To address the student's question regarding accounting for a petty cash fund, the following journal entries are required for each of the situations mentioned:

1. Establishing the fund on January 1:
   Debit Petty Cash $230
   Credit Cash $230
2. Reimbursing the fund on January 8 for the expenditures:
   Debit Postage Expense $44
   Debit Transportation-In $13
   Debit Delivery Expenses $15
   Debit Miscellaneous Expenses $33
   Credit Cash $105
3. To reimburse the fund and increase it to $330 on January 8:

First, reimburse the fund as shown in entry 2. Then, make the following entry to increase the fund:
Debit Petty Cash $100
Credit Cash $100

It is essential to record these transactions to ensure accurate financial records and maintain the integrity of the business's cash flows.