Chapter 22 Cash Funds

Cash Funds: Objectives 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. Determine whether cash is short or over, and record the shortage or overage. Define the accounting terms introduced in this chapter. Cash Funds: Objectives

Cash Funds What Do You Think? Why is controlling cash received from sales transactions important? Cash Funds

Some businesses keep cash on hand to make change for customers Some businesses keep cash on hand to make change for customers. The accounts used for this cash are Change Fund and Cash Short & Over. Cash Funds

Cash Funds: Section 1 We 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. Cash Funds: Section 1

Cash Funds 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. Cash Funds

Cash Funds: The Change Fund

Cash Funds: The Change Fund 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. Cash Funds: The Change Fund

Cash Funds: The Change Fund 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. Cash Funds: The Change Fund

Cash Funds: The Change Fund

Cash Funds: The Change Fund 22.1: text p. 646 22.2: text p. 646 Cash Funds: The Change Fund

Petty Cash Fund What Do You Think? Why is a petty cash fund important for a business? Petty Cash Fund

Businesses use petty cash funds because writing checks for small amounts is impractical, costly, and time consuming. Petty Cash Fund

Petty Cash Fund: Section 2 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. Petty Cash Fund: Section 2

Petty Cash Fund 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. The amount set aside for petty cash is recorded in the Petty Cash Fund account. Petty Cash Fund

Petty Cash Fund

Petty Cash Fund Using the Petty Cash Fund When a cash payment is made, a petty cash voucher is completed. The voucher includes the following information: 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 Petty Cash Fund

Petty Cash Fund 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. Petty Cash Fund

Petty Cash Fund 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. Petty Cash Fund

Petty Cash Fund 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. The accountant uses the petty cash requisition form to write a check, payable to the cashier, for the total of the paid vouchers. Petty Cash Fund

Petty Cash Fund Using a Petty Cash Register A petty cash register may be used to record all disbursements made from the petty cash fund. Petty Cash Fund

Petty Cash Fund 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. Petty Cash Fund

Petty Cash Fund

Petty Cash Fund 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… Petty Cash Fund

Petty Cash Fund 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 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. Petty Cash Fund

Petty Cash Fund 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. Petty Cash Fund

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. next two slides for journalizing Petty Cash Fund

Petty Cash Fund

Petty Cash Fund

Petty Cash Fund 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. Petty Cash Fund

Petty Cash Fund

22.3: text p. 655 Petty Cash Fund

Chapter 22 22.4: text p. 660 22.5: text p. 660 22.6: text p. 661 22, 22A: text A-65 – A-66 Graded problem Chapter 22