Multiple Choice
Which of the following procedures is typically used when a petty cash fund is established?
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6. Internal Controls and Reporting Cash
Petty Cash
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When a petty cash fund is replenished, which accounts are affected?
A
Various expense accounts are debited and Cash is credited.
B
Petty Cash is debited and Cash is credited.
C
Petty Cash is credited and Cash is debited.
D
Cash is debited and various expense accounts are credited.
Verified step by step guidance1
Understand the purpose of replenishing a petty cash fund: It is to restore the petty cash fund to its original balance after expenses have been paid out of it.
Identify the accounts involved: When replenishing petty cash, the expenses paid from the fund are recorded, and the cash used to replenish the fund is credited.
Determine the correct journal entry: Various expense accounts (e.g., Office Supplies, Travel Expenses) are debited to reflect the expenses incurred, and the Cash account is credited to show the reduction in cash used to replenish the fund.
Clarify why Petty Cash is not debited or credited: The Petty Cash account remains unchanged during replenishment because it represents the fixed amount set aside for petty expenses, not the transactions themselves.
Review the correct accounting treatment: The correct entry is to debit the expense accounts for the amounts spent and credit the Cash account for the total amount replenished.
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