Question

You oversee the $250 petty cash for your company. When an employee needs a special item that is not in inventory, you take money from petty cash to purchase that item. One day, you are short on cash for lunch. You decide to borrow $10 each day for the next 3 days until payday for a total of $30 from petty cash. After payday, you do not have enough to repay petty cash, so you decide to record a cash short/over expense of $30. Since this is the first time you have ever done this, is this a problem? If so, what steps should be taken to fix this problem? If not, why not? What is Petty Cash and how is it represented on the balance sheet? What types of expenses are used with petty cash?

Answer 1

You oversee the $250 petty cash for your company. When an employee needs a special item that is not in inventory, you take money from petty cash to purchase that item. One day, you are short on cash for lunch. You decide to borrow $10 each day for the next 3 days until payday for a total of $30 from petty cash. After payday, you do not have enough to repay petty cash, so you decide to record a cash short/over expense of $30. Since this is the first time you have ever done this, is this a problem? If so, what steps should be taken to fix this problem? If not, why not? What is Petty Cash and how is it represented on the balance sheet? What types of expenses are used with petty cash?

In the above problem followings questions needs to be addressed

1. The cash short is a problem even it is done first time.
2. How to fix the problem.
3. If this is not able to fix why not
4. What is petty cash
5. How petty cash represented in balance sheet
6. What types of expenses used with petty cash

The question will be re arrange based on requirement and answer for the same for better understanding of topic.

1	What is Petty Cash
	Petty Cash is used for small expenses for day to day payments which based on urgent needs. Because it is not economical for writing cheque for such payments. And the person responsible for the petty cash is known as petty cashier or petty cash custodian.
2	What type of expenses used with petty cash
	Postage, courier charges Reimbursing a supply bring by the employees. Urgent meetings snacks, tea expenses for official purpose Similar to above any other payment.
3	How Petty Cash Represented in Balance Sheet
	As normal Cash Balance – Petty Cash also a balance sheet item shown under assets side under current assets. Sometimes it can be combined with normal cash balances while preparing the financial statement.
4	The cash short is a problem even it is done first time.
	Being a custodian of petty cash he is responsible to maintain all the records for expenses and maintain required balance with him separately. So even it is first time he will be personally responsible for shortfall arise.
5	How to fix the problem
	It is advised that he should not use petty cash amount for any other purpose (such as his personal lunch) and if he used such cash he need to inform his reporting authority and take appropriate approval before using it. Currently he should inform to his reporting manager and pay the shortfall amount.
6	If this is not able to fix why not
	The problem should not arise in future, and this problem should be fixed with appropriate date otherwise it will lead to misappropriation of company funds even amount is small but it will leads to serious action against him.

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