8 4 Define the Purpose and Use of a Petty Cash Fund, and Prepare Petty Cash Journal Entries Principles of Accounting, Volume 1: Financial Accounting

Because a petty cash voucher is made out for all disbursements, the total of the vouchers and the remaining cash should always equal the amount of the fund (in this case, $100). To create a petty cash fund, a check is written to cash for a set amount such as $75 or $100. At the time the entry is made, the custodian will receive a $315 check that’s cashed and the money placed in the lockbox. Overall, there’s a total of $500 in the lockbox after replenishment.

Sometimes, the petty cash custodian makes errors in making change from the fund or doesn’t receive correct amounts back from users. These errors cause the cash in the fund to be more or less than the amount of the fund less the total vouchers. When the fund is replenished, the credit to Cash is for the difference between the established amount and the actual cash in the fund. Any discrepancy should be debited or credited to an account called Cash Over and Short. The Cash Over and Short account can be either an expense (short) or a revenue (over), depending on whether it has a debit or credit balance. The petty cash journal contains a summarization of the payments from a petty cash fund.

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Petty cash is a convenient alternative to writing checks for smaller transactions. The answer to how to record the journal entry for petty cash is not straightforward. As stated above, the petty cash account may include different types of transactions.

By combining the journal entries, Petty Cash isn’t adjusted and the expenses are recorded coming directly from the checking account. Before establishing a petty cash fund at your small business, be prepared to create a petty cash accounting system. On the other hand, they also put cash into this system through their bank account.

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In the journal entry, Accounts Receivable has a debit of $5,500. This is posted to the Accounts Receivable https://www.bookstime.com/ T-account on the debit side. This is posted to the Service Revenue T-account on the credit side.

You can see that a journal has columns labeled debit and credit. The debit is on the left side, and the credit is on the right. To accomplish the reimbursement, the treasurer’s office provides the requested amount (by check or currency) to the custodian. In most companies, there petty cash are many occasions when a small amount of cash must be spent at short notice. Eric Gerard Ruiz is an accounting and bookkeeping expert for Fit Small Business. He completed a Bachelor of Science degree in Accountancy at Silliman University in Dumaguete City, Philippines.