Page 353 - Accounting Principles (A Business Perspective)

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PETTY CASH VOUCHERS NO. 359
To Local Cartage, Inc. Date 2010 June 29
EXPLANATION ACCT NO. AMOUNT
Freight on parts 27 12 57

APPROVED B A.E.C. RECEIVED B Ken Black
Exhibit 76: Petty cash voucher
For example, assume the USD 100 petty cash fund currently has a money balance of USD 7.40. A summary of
the vouchers shows payments of USD 22.75 for shipping, USD 50.80 for stamps, and USD 19.05 for an advance to
an employee; these payments total USD 92.60. After the vouchers have been examined and approved, an employee
draws a check for USD 92.60 which, when cashed, restores the cash in the fund to its USD 100 balance. The journal
entry to record replenishment is:
Delivery Expense 22.75
Postage Expense 50.80
Receivable from Employees (or Advances t) Employees) 19.05
Cash 92.60
To replenish a petty cash fund.
Note that the entry to record replenishing the fund does not credit the Petty Cash account. We make entries to
the Petty Cash account only when the fund is established, when the end of the accounting period arrives and the
fund is not replenished, or when the size of the fund is changed.
At the end of an accounting period, the firm records any petty cash disbursements for which the fund has not yet

been replenished. Since the fund has not been replenished, the credit would be to Petty Cash rather than Cash.
Failure to make an entry at the end of an accounting period would cause errors in both the income statement and
balance sheet. The easiest way to record these disbursements is to replenish the fund.
After a time, if the petty cash custodian finds that the petty cash fund is larger than needed, the excess petty cash
should be deposited in the company's checking account. The required entry to record a decrease in the fund debits
Cash and credits Petty Cash for the amount returned and deposited. On the other hand, a petty cash fund may be
too small, requiring replenishment every few days. The entry to record an increase in the fund debits Petty Cash

and credits Cash for the amount of the increase.
To illustrate, the entry to decrease the petty cash fund by USD 50 would be:
Cash 50
Petty Cash 50
To decrease the size of the petty cash fund by $50.
The entry to increase the petty cash fund by USD 600 would be:
Petty Cash 600
Cash 600
To increase the size of the petty cash fund by $600.
The following rules summarize how the Petty Cash account is debited and credited:

Debited to establish
Debited to increase
Credited to decrease
Credited to terminate
Sometimes, the petty cash custodian makes errors in making change from the fund. 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 restored to its
original amount, the credit to Cash is for the difference between the established amount and the actual cash in the

Accounting Principles: A Business Perspective 354 A Global Text