Problem 6-3A: Establishing, Reimbursing, And Increasing Petty CashNakashima Gallery Had The Following Petty Cash Transactions In February Of The Current Year. Nakashima Uses The Perpetual System To Account For Merchandise Inventory.- February 2: Wrote
Understanding Petty Cash Transactions
Petty cash is a small amount of money kept on hand by a business to cover minor expenses, such as office supplies, postage, and other small purchases. Petty cash transactions are typically recorded in a separate account, and the cash is replenished periodically to maintain a balance.
Nakashima Gallery's Petty Cash Transactions
Nakashima Gallery had the following petty cash transactions in February of the current year:
- February 2: Wrote a check for $1,000 to establish a petty cash fund.
- February 5: Paid $15 for office supplies using petty cash.
- February 10: Paid $20 for postage using petty cash.
- February 15: Paid $30 for a gift card using petty cash.
- February 20: Paid $25 for a coffee machine using petty cash.
- February 25: Paid $10 for a stapler using petty cash.
- February 28: Reimbursed the petty cash fund with a check for $1,100.
Analyzing Petty Cash Transactions
To analyze the petty cash transactions, we need to determine the net change in the petty cash fund. The initial balance of the petty cash fund was $1,000, and the total amount reimbursed on February 28 was $1,100.
Calculating Net Change in Petty Cash Fund
To calculate the net change in the petty cash fund, we need to subtract the initial balance from the total amount reimbursed.
Net change in petty cash fund = Total amount reimbursed - Initial balance = $1,100 - $1,000 = $100
Recording Petty Cash Transactions
To record the petty cash transactions, we need to create a journal entry that includes the following:
- Debit: Petty cash (for the initial establishment of the fund)
- Credit: Cash (for the initial establishment of the fund)
- Debit: Office supplies (for the $15 payment)
- Credit: Petty cash (for the $15 payment)
- Debit: Postage (for the $20 payment)
- Credit: Petty cash (for the $20 payment)
- Debit: Gift card (for the $30 payment)
- Credit: Petty cash (for the $30 payment)
- Debit: Coffee machine (for the $25 payment)
- Credit: Petty cash (for the $25 payment)
- Debit: Stapler (for the $10 payment)
- Credit: Petty cash (for the $10 payment)
- Debit: Petty cash (for the $100 net change)
- Credit: Cash (for the $100 net change)
Journal Entry
| Date | Account | Debit | Credit |
|---|---|---|---|
| Feb 2 | Petty cash | $1,000 | |
| Feb 2 | Cash | $1,000 | |
| Feb 5 | Office supplies | $15 | |
| Feb 5 | Petty cash | $15 | |
| Feb 10 | Postage | $20 | |
| Feb 10 | Petty cash | $20 | |
| Feb 15 | Gift card | $30 | |
| Feb 15 | Petty cash | $30 | |
| Feb 20 | Coffee machine | $25 | |
| Feb 20 | Petty cash | $25 | |
| Feb 25 | Stapler | $10 | |
| Feb 25 | Petty cash | $10 | |
| Feb 28 | Petty cash | $100 | |
| Feb 28 | Cash | $100 |
Conclusion
In conclusion, Nakashima Gallery's petty cash transactions in February of the current year included the establishment of a petty cash fund, reimbursement of the fund, and various payments for office supplies, postage, gift cards, coffee machines, and staplers. The net change in the petty cash fund was $100, which was reimbursed on February 28.
Establishing Petty Cash Fund
Establishing a petty cash fund is a common practice for businesses to cover minor expenses. The initial balance of the petty cash fund is typically established by writing a check or depositing cash into the fund.
Reimbursing Petty Cash Fund
Reimbursing the petty cash fund is necessary to maintain a balance in the fund. The reimbursement is typically made by writing a check or depositing cash into the fund.
Increasing Petty Cash Fund
Increasing the petty cash fund is necessary to cover additional expenses. The increase in the petty cash fund is typically made by writing a check or depositing cash into the fund.
Petty Cash Transactions
Petty cash transactions are typically recorded in a separate account, and the cash is replenished periodically to maintain a balance. The petty cash transactions include the establishment of the fund, reimbursement of the fund, and various payments for office supplies, postage, gift cards, coffee machines, and staplers.
Journal Entry
The journal entry for petty cash transactions includes debits and credits for the establishment of the fund, reimbursement of the fund, and various payments for office supplies, postage, gift cards, coffee machines, and staplers.
Conclusion
Understanding Petty Cash Transactions
Petty cash is a small amount of money kept on hand by a business to cover minor expenses, such as office supplies, postage, and other small purchases. Petty cash transactions are typically recorded in a separate account, and the cash is replenished periodically to maintain a balance.
Nakashima Gallery's Petty Cash Transactions
Nakashima Gallery had the following petty cash transactions in February of the current year:
- February 2: Wrote a check for $1,000 to establish a petty cash fund.
- February 5: Paid $15 for office supplies using petty cash.
- February 10: Paid $20 for postage using petty cash.
- February 15: Paid $30 for a gift card using petty cash.
- February 20: Paid $25 for a coffee machine using petty cash.
- February 25: Paid $10 for a stapler using petty cash.
- February 28: Reimbursed the petty cash fund with a check for $1,100.
Analyzing Petty Cash Transactions
To analyze the petty cash transactions, we need to determine the net change in the petty cash fund. The initial balance of the petty cash fund was $1,000, and the total amount reimbursed on February 28 was $1,100.
Calculating Net Change in Petty Cash Fund
To calculate the net change in the petty cash fund, we need to subtract the initial balance from the total amount reimbursed.
Net change in petty cash fund = Total amount reimbursed - Initial balance = $1,100 - $1,000 = $100
Recording Petty Cash Transactions
To record the petty cash transactions, we need to create a journal entry that includes the following:
- Debit: Petty cash (for the initial establishment of the fund)
- Credit: Cash (for the initial establishment of the fund)
- Debit: Office supplies (for the $15 payment)
- Credit: Petty cash (for the $15 payment)
- Debit: Postage (for the $20 payment)
- Credit: Petty cash (for the $20 payment)
- Debit: Gift card (for the $30 payment)
- Credit: Petty cash (for the $30 payment)
- Debit: Coffee machine (for the $25 payment)
- Credit: Petty cash (for the $25 payment)
- Debit: Stapler (for the $10 payment)
- Credit: Petty cash (for the $10 payment)
- Debit: Petty cash (for the $100 net change)
- Credit: Cash (for the $100 net change)
Journal Entry
| Date | Account | Debit | Credit |
|---|---|---|---|
| Feb 2 | Petty cash | $1,000 | |
| Feb 2 | Cash | $1,000 | |
| Feb 5 | Office supplies | $15 | |
| Feb 5 | Petty cash | $15 | |
| Feb 10 | Postage | $20 | |
| Feb 10 | Petty cash | $20 | |
| Feb 15 | Gift card | $30 | |
| Feb 15 | Petty cash | $30 | |
| Feb 20 | Coffee machine | $25 | |
| Feb 20 | Petty cash | $25 | |
| Feb 25 | Stapler | $10 | |
| Feb 25 | Petty cash | $10 | |
| Feb 28 | Petty cash | $100 | |
| Feb 28 | Cash | $100 |
Q&A
Q: What is petty cash?
A: Petty cash is a small amount of money kept on hand by a business to cover minor expenses, such as office supplies, postage, and other small purchases.
Q: How is petty cash established?
A: Petty cash is established by writing a check or depositing cash into the fund.
Q: What is the purpose of reimbursing the petty cash fund?
A: The purpose of reimbursing the petty cash fund is to maintain a balance in the fund.
Q: How is the net change in the petty cash fund calculated?
A: The net change in the petty cash fund is calculated by subtracting the initial balance from the total amount reimbursed.
Q: What is the journal entry for petty cash transactions?
A: The journal entry for petty cash transactions includes debits and credits for the establishment of the fund, reimbursement of the fund, and various payments for office supplies, postage, gift cards, coffee machines, and staplers.
Q: What is the purpose of recording petty cash transactions?
A: The purpose of recording petty cash transactions is to maintain accurate financial records and to ensure that the petty cash fund is properly managed.
Q: How often should the petty cash fund be replenished?
A: The petty cash fund should be replenished periodically to maintain a balance in the fund.
Q: What are some common expenses that are paid using petty cash?
A: Some common expenses that are paid using petty cash include office supplies, postage, gift cards, coffee machines, and staplers.
Q: What is the net change in the petty cash fund for Nakashima Gallery?
A: The net change in the petty cash fund for Nakashima Gallery is $100, which was reimbursed on February 28.
Q: What is the total amount reimbursed for Nakashima Gallery's petty cash fund?
A: The total amount reimbursed for Nakashima Gallery's petty cash fund is $1,100.
Q: What is the initial balance of Nakashima Gallery's petty cash fund?
A: The initial balance of Nakashima Gallery's petty cash fund is $1,000.
Q: What is the purpose of creating a journal entry for petty cash transactions?
A: The purpose of creating a journal entry for petty cash transactions is to record the debits and credits for the establishment of the fund, reimbursement of the fund, and various payments for office supplies, postage, gift cards, coffee machines, and staplers.
Q: What are some common accounts that are debited or credited in a journal entry for petty cash transactions?
A: Some common accounts that are debited or credited in a journal entry for petty cash transactions include petty cash, cash, office supplies, postage, gift cards, coffee machines, and staplers.
Q: What is the importance of accurately recording petty cash transactions?
A: The importance of accurately recording petty cash transactions is to maintain accurate financial records and to ensure that the petty cash fund is properly managed.
Q: What are some common mistakes that can be made when recording petty cash transactions?
A: Some common mistakes that can be made when recording petty cash transactions include failing to record the debits and credits for the establishment of the fund, reimbursement of the fund, and various payments for office supplies, postage, gift cards, coffee machines, and staplers.
Q: What is the purpose of reviewing and reconciling petty cash transactions?
A: The purpose of reviewing and reconciling petty cash transactions is to ensure that the petty cash fund is properly managed and that the financial records are accurate.
Q: What are some common steps that can be taken to review and reconcile petty cash transactions?
A: Some common steps that can be taken to review and reconcile petty cash transactions include verifying the debits and credits for the establishment of the fund, reimbursement of the fund, and various payments for office supplies, postage, gift cards, coffee machines, and staplers.
Q: What is the importance of maintaining accurate financial records for petty cash transactions?
A: The importance of maintaining accurate financial records for petty cash transactions is to ensure that the petty cash fund is properly managed and that the financial records are accurate.
Q: What are some common consequences of failing to accurately record petty cash transactions?
A: Some common consequences of failing to accurately record petty cash transactions include financial errors, mismanagement of the petty cash fund, and inaccurate financial records.
Q: What are some common best practices for managing petty cash transactions?
A: Some common best practices for managing petty cash transactions include accurately recording the debits and credits for the establishment of the fund, reimbursement of the fund, and various payments for office supplies, postage, gift cards, coffee machines, and staplers.
Q: What is the purpose of creating a petty cash fund?
A: The purpose of creating a petty cash fund is to provide a convenient and efficient way to pay for minor expenses.
Q: What are some common types of expenses that are paid using petty cash?
A: Some common types of expenses that are paid using petty cash include office supplies, postage, gift cards, coffee machines, and staplers.
Q: What is the importance of maintaining a balance in the petty cash fund?
A: The importance of maintaining a balance in the petty cash fund is to ensure that the fund is properly managed and that the financial records are accurate.
Q: What are some common steps that can be taken to maintain a balance in the petty cash fund?
A: Some common steps that can be taken to maintain a balance in the petty cash fund include regularly reviewing and reconciling the petty cash transactions.
Q: What is the purpose of reviewing and reconciling petty cash transactions?
A: The purpose of reviewing and reconciling petty cash transactions is to ensure that the petty cash fund is properly managed and that the financial records are accurate.
Q: What are some common consequences of failing to maintain a balance in the petty cash fund?
A: Some common consequences of failing to maintain a balance in the petty cash fund include financial errors, mismanagement of the petty cash fund, and inaccurate financial records.