Question

What is the purpose of a Petty Cash Fund? Provide an example journal entry that a company might use to set up a Petty Cash Fund. Additionally, provide two example journal entries of payments from the Petty Cash Fund AND one example journal entry example to replenish the balance in the Fund.

Answer 1

We know that for making any payments proper procedures are followed to reduce cash frauds, every payment is authorized by a proper officer. The same procedure becomes a headache when the payments are of nominal amounts such as postage expense, stationery, telegram expense, freight expense etc. To eliminate this problem companies make a fund called petty cash and transfer a particular amount to that fund by debiting petty cash and c5rediting petty cash. Payments are made from this petty cash fund and at the end of the period this fund is replenished/reimbursed for expenses made. Balance in petty cash is shown in cash and cash equivalents.

Journal entries
(a) Entry at the time of Establishment of Petty cash fund
Date	General Journal	Debit	Credit
1-Sep	Petty cash	$ 350.00
	cash		$ 350.00
	(Petty cash created)
(b) Entry for expenses made from petty cash
5-Sep	Postage Expense	$ 123.00
	Petty cash		$ 123.00
	(Paid expenses by petty cash account)
28-Sep	Miscellaneous expense	$ 150.00
	Petty cash		$ 150.00
	(Paid expenses by petty cash account)
(c ) Entry at the time of replenishment of Fund
30-Sep	Petty cash	$ 273.00
	cash		$ 273.00
	(Petty cash replenished)