Cash Funds Making Accounting Relevant In the workplace, many people handle cash. Protecting cash from theft or loss is important. Making Accounting Relevant In the workplace, many people handle cash. Protecting cash from theft or loss is important. If you were the owner of a business, what measures would you take to protect cash?

Section 1The Change Fund What You’ll Learn  Why a business needs to have a small amount of cash on hand.  How to record the entry to establish a change fund.  How to prove the cash in the cash register drawer at the end of each business day. What You’ll Learn  Why a business needs to have a small amount of cash on hand.  How to record the entry to establish a change fund.  How to prove the cash in the cash register drawer at the end of each business day.

Why It’s Important Retail businesses that use a cash register need to maintain controls over the change fund and to account for cash shortages and overages. Why It’s Important Retail businesses that use a cash register need to maintain controls over the change fund and to account for cash shortages and overages. Key Terms  change fund Key Terms  change fund Section 1The Change Fund (cont'd.)

Establishing a Change Fund  used to make change in cash transactions. Section 1The Change Fund (cont'd.) Business Transaction On May 1, the accountant for On Your Mark wrote Check 2150 for $100 to establish a change fund. ANALYSIS Identify1.The accounts affected are Change Fund and Cash in Bank. Classify2.Both Change Fund and Cash in Bank are asset accounts. + / –3.Change Fund is increased by $100. Cash in Bank is decreased by $100.

Establishing a Change Fund (cont'd.) Section 1The Change Fund (cont'd.) Business Transaction (cont'd.) On May 1, the accountant for On Your Mark wrote Check 2150 for $100 to establish a change fund. DEBIT-CREDIT RULE 4.Increases to asset accounts are recorded as debits. Debit Change Fund for $ Decreases to asset accounts are recorded as credits. Credit Cash in Bank for $100.

Establishing a Change Fund (cont'd.) Section 1The Change Fund (cont'd.) Business Transaction (cont'd.) On May 1, the accountant for On Your Mark wrote Check 2150 for $100 to establish a change fund. T ACCOUNTS 6. ChangeCash in FundBank Debit Debit + Credit – Credit – 100

Establishing a Change Fund (cont'd.) Section 1The Change Fund (cont'd.) Business Transaction (cont'd.) On May 1, the accountant for On Your Mark wrote Check 2150 for $100 to establish a change fund. JOURNAL ENTRY 7.

Using the Change Fund  Change fund is put into the cash register drawer at the beginning of the day.  A cash proof is prepared to verify that the amount of cash in the drawer equals the total cash sales for the day plus the change fund.  The amount of cash in the change fund is set aside for use as change for the next day.  Change fund is put into the cash register drawer at the beginning of the day.  A cash proof is prepared to verify that the amount of cash in the drawer equals the total cash sales for the day plus the change fund.  The amount of cash in the change fund is set aside for use as change for the next day. Section 1The Change Fund (cont'd.)

Recording Cash Short and Over  The amount of cash either gained or lost because of errors is recorded in the Cash Short & Over account.  Cash Short & Over is a temporary account.  The Cash Short & Over account does not have a normal balance.  The amount of cash either gained or lost because of errors is recorded in the Cash Short & Over account.  Cash Short & Over is a temporary account.  The Cash Short & Over account does not have a normal balance. Section 1The Change Fund (cont'd.) Cash Short & Over Debit Cash Shortages Credit Cash Overages

Check Your Understanding Suppose a salesclerk makes an error and gives an incorrect amount of change to a customer. Explain how this error is recorded in the accounting records. Section 1The Change Fund (cont'd.)

Section 2The Petty Cash Fund What You’ll Learn  How a business establishes a petty cash fund.  How to prepare petty cash requisitions to replenish the petty cash fund.  How to use a petty cash register to record petty cash disbursements.  How to record the journal entry to replenish the petty cash fund.  How to determine whether petty cash is short or over and record the amount of the shortage or overage. What You’ll Learn  How a business establishes a petty cash fund.  How to prepare petty cash requisitions to replenish the petty cash fund.  How to use a petty cash register to record petty cash disbursements.  How to record the journal entry to replenish the petty cash fund.  How to determine whether petty cash is short or over and record the amount of the shortage or overage.

Why It’s Important Businesses use petty cash funds because writing checks for small amounts is impractical, costly, and time consuming. Why It’s Important Businesses use petty cash funds because writing checks for small amounts is impractical, costly, and time consuming. Key Terms  petty cash fund  petty cash disbursement  petty cashier Key Terms  petty cash fund  petty cash disbursement  petty cashier Section 2The Petty Cash Fund (cont'd.)  petty cash voucher  petty cash requisition  petty cash register  petty cash voucher  petty cash requisition  petty cash register

Establishing a Petty Cash Fund  Small, incidental cash payments are made from the petty cash fund.  To establish a petty cash fund, a business estimates the amount of cash needed in the fund for a certain period of time, usually a month.  Small, incidental cash payments are made from the petty cash fund.  To establish a petty cash fund, a business estimates the amount of cash needed in the fund for a certain period of time, usually a month. Section 2The Petty Cash Fund (cont'd.)

Journalizing the Establishment of the Petty Cash Fund Section 2The Petty Cash Fund (cont'd.) Business Transaction On May 1, Check 2151 for $100 was issued to establish the petty cash fund. JOURNAL ENTRY

Section 2The Petty Cash Fund (cont'd.) Making Petty Cash Payments Whenever a cash payment is made, a petty cash voucher is completed. Making Petty Cash Payments Whenever a cash payment is made, a petty cash voucher is completed.

Replenishing the Petty Cash Fund  When the amount of cash in the petty cash box reaches the minimum amount, the petty cash fund is replenished.  Replenishing the petty cash fund restores the fund to its original cash balance.  When the amount of cash in the petty cash box reaches the minimum amount, the petty cash fund is replenished.  Replenishing the petty cash fund restores the fund to its original cash balance. Section 2The Petty Cash Fund (cont'd.)

Reconciling the Petty Cash Fund  Add all the paid petty cash vouchers.  This total is then subtracted from the original cash balance of the petty cash fund.  The difference is the reconciled petty cash balance, or the amount of money that should be in the petty cash box.  Add all the paid petty cash vouchers.  This total is then subtracted from the original cash balance of the petty cash fund.  The difference is the reconciled petty cash balance, or the amount of money that should be in the petty cash box. Section 2The Petty Cash Fund (cont'd.) Original balance$ Total of paid petty cash vouchers– Reconciled petty cash balance$ Original balance$ Total of paid petty cash vouchers– Reconciled petty cash balance$ 12.25

Preparing a Petty Cash Requisition Form  After the petty cash fund is reconciled, the petty cashier prepares a petty cash requisition.  A petty cash requisition is a form requesting money to replenish the petty cash fund.  After the petty cash fund is reconciled, the petty cashier prepares a petty cash requisition.  A petty cash requisition is a form requesting money to replenish the petty cash fund. Section 2The Petty Cash Fund (cont'd.)

Using a Petty Cash Register  A supplemental record that summarizes the types of petty cash disbursements.  It is not an accounting journal because amounts from this register are not posted to general ledger accounts.  A supplemental record that summarizes the types of petty cash disbursements.  It is not an accounting journal because amounts from this register are not posted to general ledger accounts. Section 2The Petty Cash Fund (cont'd.)

Check Your Understanding How do you determine if a petty cash fund is short or over? Section 2The Petty Cash Fund (cont'd.)