Q18E - Horngren'S Financial And Managerial Accounting

Question

Controlling petty cash Just Hangin’ Night Club maintains an imprest petty cash fund of \(150, which is under the control of Sandra Morgan. At March 31, the fund holds \)14 cash and petty cash tickets for office supplies, \(128, and delivery expense, \)15.

Requirements

1. Explain how an imprest petty cash system works.

2. Journalize the establishment of the petty cash fund on March 1 and the replenishing of the fund on March 31.

3. Prepare a T-account for Petty Cash and post to the account. What is the balance of the Petty Cash account at all times?

Step-by-Step Solution

Answer

The cash account is credited with $136.

Step-by-Step Solution Step 1: Definition of delivery expense

The delivery expense means the expense that is paid for the delivery.

Step 2: Imprest system

The imprest system is a system that is used to maintain the balance of the petty cash fund. In this, cash plus petty cash equals the petty cash fund balance. This system works by adding the cash plus petty cash tickets to check the petty cash fund accuracy. If there is any difference between the petty cash fund balance and cash plus petty cash fund, then the custodian is responsible for this. Hence, this is the working of the imprest petty cash system.

Step 3: Journal entries for a petty cash fund

Date	Particulars	Debit	Credit
	Petty Cash Fund	$150
	Cash		$150
	(Journal entry for the creation of petty cash fund)
	Office Supplies	$128
	Delivery Expenses	$15
	Cash Short & Over		$7
	Cash		$136
	(Being journal entry for replenishing petty cash fund)

Step 4: T-accounts

Petty Cash
Bal.	$150
		Office supplies	$128
		Delivery Expense	$15
End. Balance	$7

The balance of the petty cash is $7 all time.