LESSON 5-4 Petty Cash December 4, 2013

O BJECTIVES Define accounting terms related to using a petty cash fund. Establish and replenish a petty cash fund.

P ICTURE THIS ! Picture yourself working in a business that’s uses checks for all cash payments. What would happen if the letter carrier brought an envelope to you with $1.25 postage due? In many businesses it takes days to authorize and write a check. This lesson will illustrate another option for the business

5-4 T ERMINOLOGY petty cash -an amount of cash kept on hand and used for making small payments. (p. 134) petty cash slip -a form showing proof of a petty cash payment. (p. 135)

H OW IS P ETTY C ASH U SED IN B USINESSES ? To make change for customers or patients To pay for small purchases which require cash, such as food for the office lunch or coffee supplies, or for parking. Most retail businesses keep a cash drawer as do health care practices.

M ORE O N P ETTY C ASH … Most large corporations may have several petty cash funds The Petty Cash Account is an asset account with a normal debit balance

M ORE O N P ETTY C ASH … Keep as much cash as you need in your cash drawer, but not too much, so it isn't a temptation for employees or robbers.

A SK Y OURSELF THE FOLLOWING WHEN ANALYZING THE TRANSACTION … What Accounts are Affected? Are they Increased or Decreased? Are they Debited or Credited? Complete the T accounts as the information is provided.

9 ESTABLISHING A PETTY CASH FUND-4 STEPS 1. Date. Write the date. page 134 August 19. Paid cash to establish a petty cash fund, $ Check No Debit. Write the title of the account to be debited. Record the amount debited. 3.Credit. Record the amount credited. 4.Source document. Write the source document number.

10 MAKING PAYMENTS FROM A PETTY CASH FUND WITH A PETTY CASH SLIP page 135

MAKING PAYMENTS FROM A PETTY CASH FUND WITH A PETTY CASH SLIP page 135 When Cash is Paid from a petty cash fund, no formal entry is recorded in a journal. Only a petty cash slip is prepared. The entry will be made at a later date.

REPLENISHING PETTY CASH The Petty Cash Fund is replenished when the amount in the fund is low or at the end of a fiscal period. The balance in the actual petty cash account has never been reduced by an entry. When cash was paid from the fund, no entry was made in the journal. Therefore, the petty cash account in the general ledger still has a balance of $ page 136

REPLENISHING PETTY CASH (C ONT ) When cash was paid from the fund, the reason for the payment was recorded on a petty cash slip but no entry was made in the journal. These slips are now used to summarize payments from the fund and to record the payments in the journal. To replenish the fund, debit accounts for which petty cash was used and credit the cash account page 136

A SK Y OURSELF THE FOLLOWING WHEN ANALYZING THE TRANSACTION … What Accounts are Affected? Are they Increased or Decreased? Are they Debited or Credited? Complete the T accounts as the information is provided.

15 REPLENISHING PETTY CASH 1. Date. Write the date. page August 31. Paid cash to replenish the petty cash fund, $30.00: miscellaneous expense, $20.00; advertising, $ Check No Source document. Write the source document number. 3.Credit. Record the amount credited. 2.Debit. Write the title of the first account to be debited. Write the amount to be debited. Write the title of the second account to be debited. Record the amount to be debited.

TERMS REVIEW petty cash -an amount of cash kept on hand and used for making small payments. (p. 134)\ petty cash slip -a form showing proof of a petty cash payment. (p. 135)

A CTIVITY 12/04/2013 Aplia 5-4 (Work Together, On Your Own, Application Problem and Reinforcement Activity) Complete Chapter 5 Study Guide Xtra! Study Tools (Chapter 5) Tutorial Quiz (Chapter 5) Research a company or university's petty cash policy and provide a detailed summary of your findings. Make sure you look at what procedures are in place and uses for the account, ect and compare it with another similar company.