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Petty Cash quiz #1 Flashcards

Petty Cash quiz #1
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  • What is the primary purpose of establishing a petty cash fund in a company?
    The primary purpose of a petty cash fund is to handle minor, trivial expenses without making frequent journal entries for small amounts.
  • How is the petty cash fund initially established in the accounting records?
    The petty cash fund is established by debiting the petty cash account and crediting the main cash account for the set amount given to the custodian.
  • Who is responsible for managing the petty cash fund, and what controls are in place?
    A custodian is appointed to manage the petty cash fund, and controls include keeping vendor receipts and using pre-numbered vouchers for each transaction.
  • When are journal entries for petty cash expenses recorded?
    Journal entries for petty cash expenses are recorded only when the fund is replenished, not at the time of each individual purchase.
  • What is the typical journal entry made when replenishing the petty cash fund?
    When replenishing the petty cash fund, expenses are debited (e.g., postage, supplies, delivery), and the cash account is credited for the total amount needed to restore the fund.
  • How is a discrepancy between petty cash on hand and receipts handled in the accounting records?
    A discrepancy is recorded using the 'cash over and short' account, which is debited if short and credited if over, to balance the journal entry.
  • What happens to the petty cash account balance after replenishment?
    After replenishment, the petty cash account balance returns to its original set amount, ensuring the fund is fully restored.
  • How does the use of petty cash affect a company's equity?
    Petty cash expenses decrease company equity, while any cash over and short amounts can either increase (if over) or further decrease (if short) equity.
  • Why are pre-numbered vouchers used in petty cash systems?
    Pre-numbered vouchers are used as an internal control to ensure all petty cash transactions are accounted for and to prevent misuse or missing receipts.
  • How is the 'cash over and short' account reported in the financial statements?
    The 'cash over and short' account is typically reported as a miscellaneous item on the income statement, reflecting minor gains or losses from petty cash discrepancies.