Petty Cash System of Control

Small payments required in most companies for items such as postage, courier fees, repairs and supplies.

Operating a Petty Cash Fund

Petty Cashier

Treasurer and Accountant

GENERAL JOURNAL
Date May Description Cash PR Debit 400 400 1 Petty Cash

Petty Cashier

Page 4
Credit

Operating a Petty Cash Fund

Petty Cashier
Petty Cashier

Operating a Petty Cash Fund

Petty Cashier

34 Stamps Courier

Operating a Petty Cash Fund

Receipts

Petty Cashier

34 Stamps Courier

Operating a Petty Cash Fund

Receipts

$125

Treasurer and Accountant

To reimburse petty cash fund

Petty Cashier

GENERAL JOURNAL
Date Description Courier Expense Cash PR Debit May 15 Postage Expense

Page 4
Credit 45 80 125

We use a Cash Over and Short account if needed.

Petty Cash Example

Tension Co. maintains a petty cash fund of $400. The following summary information was taken from petty cash vouchers for July: Travel Expenses $79.30 Customer Business Lunches 93.42 Express Mail Postage 55.00 Miscellaneous Office Supplies 32.48

Lets look at replenishing the fund if the balance on July 31 was $137.80.

Petty Cash Example

What amount of cash will be required to replenish the petty cash fund? a. b. c. d. $260.20 $262.20 $139.80 $137.80

Petty Cash Example

What amount of cash will be required to replenish the petty cash fund? a. b. c. d. $260.20 Desired Balance $262.20 Actual Balance Amount Needed $139.80 $137.80
$ 400.00 137.80 $ 262.20

Petty Cash Example

Lets make the journal entry to replenish the petty cash fund.

GENERAL JOURNAL
Date Jul Description Entertainment Expense Postage Expense Office Supplies Expense Cash Over and Short Cash PR Debit 79.30 93.42 55.00 32.48 2.00 31 Travel Expense

Page 8
Credit

262.20

Bank Reconciliation
A bank reconciliation is prepared periodically to explain the difference between cash reported on the bank statement and the cash balance on companys books.

Why are the balances different?

Account: Cash GENERAL LEDGER Acct. No.
PR Debit Credit

102
Balance DR (CR) 2,481.18

Date Item May 31 Balance

Reconciling Items
Bank Statement Balance Deduct: Outstanding checks. Add: Deposits in transit. Add or Deduct: Bank errors.

Book Balance Deduct: Nonsufficient funds check (NSF). Deduct: Bank service charge. Add: Interest earned on checking account. Add: Collections made by the bank. Add or Deduct: Book errors.

Bank Reconciliation
Two sections:
Reconcile bank statement balance to the adjusted

bank balance. Reconcile book balance to the adjusted book balance.

The adjusted balances should be equal.

Bank Reconciliation Example

Lets prepare a July 31 bank reconciliation statement for the Simmons Company. The July 31 bank statement indicated a balance of $9,610, while the cash general ledger account on that date shows a balance of $7,430. Additional information necessary for the reconciliation is shown on the next screen.

Bank Reconciliation Example

Outstanding checks totaled $2,417. A $500 check mailed to the bank for deposit had not reached the bank at the statement date.

The bank returned a customers NSF check for $225 received as payment on account receivable.
The bank statement showed $30 interest earned during July. Check No. 781 for supplies expense cleared the bank for $268 but was erroneously recorded in our books as $240. A $486 deposit by Acme Company was erroneously credited to our account by the bank.

Bank Reconciliation Example

Simmons Company Bank Reconciliation July 31, 2002

Bank Balance, July 31 Add: Deposit in Transit Less: Bank Error Outstanding Checks Adjusted Balance, July 31

$ 9,610 500 $ 486 2,417 (2,903) $ 7,207

Bank Reconciliation Example

Simmons Company Bank Reconciliation July 31, 2002

Bank Balance, July 31 Add: Deposit in Transit Less: Bank Error Outstanding Checks Adjusted Balance, July 31 Book Balance, July 31 Add: Interest Less: Recording Error NSF Check Adjusted Balance, July 31

$ 9,610 500 $ 486 2,417 (2,903) $ 7,207 $ 7,430 30 (253) $ 7,207

28 225

Recording Adjusting Entries from Bank Reconciliation

Only amounts shown on the book portion of the reconciliation require an adjusting entry.

Date Jul

GENERAL JOURNAL
Description Interest Revenue
To record interest earned in July

Page 8
PR Debit Credit 30 30

31 Cash

May 19 Accounts Payable Cash

980 980

Recording Adjusting Entries from Bank Reconciliation

Only amounts shown on the book portion of the reconciliation require an adjusting entry.

Date Jul

GENERAL JOURNAL
Description Accounts Receivable Cash
To adjust cash account

Page 8
PR Debit Credit 28 225 253 980 980

31 Supplies Expense

May 19 Accounts Payable Cash

Recording Adjusting Entries from Bank Reconciliation

After posting the reconciling entries the cash account looks like this . . .
Account: Cash GENERAL LEDGER Acct. No.
PR Debit 30 253 Credit

101
Balance DR (CR) 7,430 7,460 7,207

Date Item Jul 31 Balance 31 Adjusting entry 31 Adjusting entry

Adjusted balance on July 31.

Days Sales Uncollected

How much time is likely to pass before we receive cash receipts from credit sales.
Days = Sales Uncollected Accounts Receivable Net Sales

365