0 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Unit 5 Accounting for Special Procedures Chapter 22Cash Funds Chapter 23Plant Assets and Depreciation Chapter 24Uncollectible Accounts Receivable Chapter 25Inventories Chapter 26Notes Payable and Receivable

1 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 22 Cash Funds What You’ll Learn  Record the entry to establish a change fund.  Prove the cash in the cash register drawers each business day.  Open and replenish a petty cash fund.  Journalize opening a petty cash fund.  Prepare a petty cash requisition to replenish the petty cash fund.  Use a petty cash register to record petty cash disbursements.  Journalize replenishing a petty cash fund.

2 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 22 Cash Funds What You’ll Learn  Determine whether cash is short or over, and record the shortage or overage.  Define the accounting terms introduced in this chapter.

3 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 22, Section 1 The Change Fund What Do You Think? Why is controlling cash received from sales transactions important?

4 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea Some businesses keep cash on hand to make change for customers. The accounts used for this cash are Change Fund and Cash Short & Over. You Will Learn  how and why to set up a change fund.  how to use the change fund.  how to record a discrepancy in the change fund. The Change Fund SECTION 22.1

5 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Term  change fund The Change Fund SECTION 22.1

6 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Establishing a Change Fund A change fund is an amount of money used to make change in cash transactions. The change fund is established by writing a check. The Change Fund account is debited for the check amount and the Cash in Bank account is credited for the check amount.change fund The Change Fund SECTION 22.1

7 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Establishing a Change Fund The Change Fund SECTION 22.1

8 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Establishing a Change Fund The Change Fund SECTION 22.1

9 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Establishing a Change Fund The Change Fund SECTION 22.1

10 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Establishing a Change Fund The Change Fund SECTION 22.1

11 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Using the Change Fund The amount of cash in the change fund is put in the register drawer at the beginning of the day. Cash sales that occur throughout the day are recorded on the register tape. At the end of the day, the amount in the cash drawer minus the cash fund amount should equal the total sales shown on cash register tape. The Change Fund SECTION 22.1

12 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Recording Cash Short and Over A salesclerk can make an error. If a clerk gives too much change, the drawer will be short. If a clerk gives too little change, the drawer will be over. The amount of cash lost or gained due to errors is recorded in the Cash Short & Over account. This account is closed to Income Summary at the end of the period. The Change Fund SECTION 22.1

13 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Change Fund SECTION 22.1

14 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Change Fund SECTION 22.1

15 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Term Review  change fund An amount of money, consisting of varying denominations of bills and coins, that is used to make change in cash transactions. The Change Fund SECTION 22.1

16 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 22, Section 2 The Petty Cash Fund What Do You Think? Why is a petty cash fund important for a business?

17 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea Businesses use petty cash funds because writing checks for small amounts is impractical, costly, and time consuming. You Will Learn  how and why to set up a petty cash fund.  how to use the petty cash fund.  how to record a discrepancy in the petty cash fund. The Petty Cash Fund SECTION 22.2

18 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms  petty cash fund  petty cash disbursement  petty cashier  petty cash voucher  petty cash requisition  petty cash register The Petty Cash Fund SECTION 22.2

19 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Establishing the Petty Cash Fund Small incidental cash payments are made from the petty cash fund. A petty cash disbursement has a maximum amount determined by the business. The person responsible for maintaining the petty cash fund and making cash disbursements is the petty cashier. petty cash fundpetty cash disbursement petty cashier The amount set aside for petty cash is recorded in the Petty Cash Fund account. The Petty Cash Fund SECTION 22.2

20 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Petty Cash Fund SECTION 22.2

21 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Petty Cash Fund SECTION 22.2

22 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Petty Cash Fund SECTION 22.2

23 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Petty Cash Fund SECTION 22.2

24 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Using the Petty Cash Fund When a cash payment is made, a petty cash voucher is completed. The voucher includes the following information:petty cash voucher  the date of the payment  the person or business to whom the payment is made  the amount of the payment  the reason for the payment  the account to be debited  the signature of the person approving the payment  the signature of the person receiving the payment The Petty Cash Fund SECTION 22.2

25 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Replenishing the Petty Cash Fund Replenishing the petty cash fund restores the fund to its original cash balance. This requires reconciling the cash balance in the fund and preparing a petty cash requisition form. The Petty Cash Fund SECTION 22.2

26 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Reconciling the Petty Cash Fund To reconcile the petty cash fund, all petty cash vouchers are added together. The total is subtracted from the original cash balance. The difference is the reconciled petty cash balance. The Petty Cash Fund SECTION 22.2

27 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Preparing a Petty Cash Requisition Form After the petty cash fund is reconciled, a petty cash requisition is prepared. The cashier must sort the paid petty cash vouchers by account and record the account title and total amount to be debited on the requisition form.petty cash requisition The accountant uses the petty cash requisition form to write a check, payable to the cashier, for the total of the paid vouchers. The Petty Cash Fund SECTION 22.2

28 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Using a Petty Cash Register A petty cash register may be used to record all disbursements made from the petty cash fund.petty cash register The Petty Cash Fund SECTION 22.2

29 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Recording Petty Cash Vouchers in a Petty Cash Register Not all businesses that have a petty cash fund use a petty cash register. A petty cash register is a supplemental record that summarizes the types of petty cash disbursements. The Petty Cash Fund SECTION 22.2

30 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Petty Cash Fund SECTION 22.2

31 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Totaling and Proving the Petty Cash Register To total and prove the petty cash register follow these steps:  Enter the date the fund is being replenished in the Date column.  Single rule the amount columns.  Foot each amount column.  Verify the total Payments equals the total Distribution of Payments.  Draw a double rule under the amount columns. (continued) The Petty Cash Fund SECTION 22.2

32 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Totaling and Proving the Petty Cash Register  To enter the petty cash replenishment information, first enter the reconciled petty cash balance. This is the amount of cash that should be in the petty cash box before it is replenished.  On the next line, write the amount of the replenishment check.  Add the balance that should be in the petty cash fund to the check amount. The sum should equal the original amount of the petty cash fund. The Petty Cash Fund SECTION 22.2

33 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Using a Petty Cash Envelope Petty cash envelopes are used to record petty cash disbursements. Each envelope has a form printed on the front of it to record disbursements. The Petty Cash Fund SECTION 22.2

34 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Journalizing the Check to Replenish the Petty Cash Fund The check written to replenish the petty cash fund is recorded on the check stub and the petty cash requisition. An example of how to journalize this transaction follows. The Petty Cash Fund SECTION 22.2

35 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Journalizing the Check to Replenish the Petty Cash Fund The Petty Cash Fund SECTION 22.2

36 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Journalizing the Check to Replenish the Petty Cash Fund The Petty Cash Fund SECTION 22.2

37 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Petty Cash Fund SECTION 22.2

38 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Petty Cash Fund SECTION 22.2

39 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Handling Cash Short and Over in the Petty Cash Fund The petty cashier may make an error when paying cash from the petty cash fund. Amounts gained and lost are recorded in the Cash Short & Over account in the journal entry to replenish the fund. An example follows of how to report a cash shortage in the petty cash register, if one is used. The Petty Cash Fund SECTION 22.2

40 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Handling Cash Short and Over in the Petty Cash Fund The Petty Cash Fund SECTION 22.2

41 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  petty cash fund Cash kept on hand for making small, incidental cash payments.  petty cash disbursement Any payment made from the petty cash fund.  petty cashier The person responsible for maintaining the petty cash fund and for making petty cash disbursements.  petty cash voucher A form that provides proof of payment from the petty cash fund. The Petty Cash Fund SECTION 22.2 (continued)

42 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  petty cash requisition A form requesting money to replenish the petty cash fund.  petty cash register A record of all disbursements made from the petty cash fund. The Petty Cash Fund SECTION 22.2

43 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Question 1 On March 1, Ed’s Hardware established a change fund for $200. What steps do you need to take to record the journal entry for this transaction? Chapter 22 Review CHAPTER 22

44 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Answer 1 Step 1:Identify the accounts affected. The accounts Change Fund and Cash in Bank are affected. Step 2: Classify the accounts affected. Change Fund and Cash in Bank are asset accounts. Step 3:Determine the amount of increase or decrease for each account affected. Change Fund is increased by $200. Cash in Bank is decreased by $200. Chapter 22 Review CHAPTER 22 (continued)

45 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Answer 1 Step 4:Which account is debited? For what amount? Increases to asset accounts are recorded as debits. Debit Change Fund for $200. Step 5: Which account is credited? For what amount? Decreases to asset accounts are recorded as credits. Credit Cash in Bank for $200. Chapter 22 Review CHAPTER 22

46 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Question 2 If the petty cash fund does not balance, what account is affected to indicate the error? Chapter 22 Review CHAPTER 22

47 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Answer 2 You would debit Cash Short & Over in the event of a shortage or credit the same account in the event of an overage. Chapter 22 Review CHAPTER 22

48 Glencoe Accounting Unit 5 Chapter 22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Resources Glencoe Accounting Online Learning Center English Glossary Spanish Glossary