Question

Palmona Co. establishes a $290 petty cash fund on January 1. On January 8, the fund shows $203 in cash along with receipts for the following expenditures: postage, $35; transportation-in, $13; delivery expenses, $15; and miscellaneous expenses, $24. Palmona uses the perpetual system in accounting for merchandise inventory.

Prepare journal entries to (1) establish the fund on January 1, (2) reimburse it on January 8, and (3) both reimburse the fund and increase it to $340 on January 8, assuming no entry in part 2. Hint: Make two separate entries for part 3.

Answer 1

To establish petty cash fund, debit petty cash with 290 $ and credit cash with 290 $

In case petty cash fund is increased to 340, the difference of 340 - 290 = 50 $, additional entry is to be passed.

To increase the petty cash fund, debit petty cash with 50 $ and credit cash with 50 $.