Question

A company set up a petty cash fund with $800. The disbursements are as follows:

Office supplies $300


Shipping $50


Postage $30


Delivery expense $350



1. To create the fund, which account should be debited?


A. Supplies


B. Petty Cash


C. Cash at bank


D. Postage



2. To disburse funds, which account credited?


A. Supplies


B. Cash at bank


C. Postage


D. Petty cash



3. To replenish the petty cash fund, the journal entry would include?


A. Credit petty cash and debit cash


B. Debit postage and credit cash


C. Credit cash and debit postage


D. Debit petty cash and credit cash

Answer 1

Answer: 1. B. Petty Cash

2. D. Petty Cash

3. D. Debit petty cash and credit cash

Step-by-step explanation:

1. When creating the Petty Cash fund, Cash is credited because money is being removed from it. It is then put into the Petty Cash account hence a debit.

2. When taking money from Petty Cash, it is an asset and so is credited to reflect the outflow.

3. Similar to the transaction in question 1. You are taking money from cash account to.put in Petty Cash so the right procedure is to debit Petty Cash and credit Cash.