1. Example Exercise 4 Special-purpose cash funds
A company may use a special purpose cash fund, called a petty cash fund. This fund is used to pay for small items such as postage, office supplies, or minor repairs when writing a check for a small amount may not be practical.

2. Example Exercise 4 A petty cash fund is established for $500.
Assume that a petty cash fund is set up for $500 on August 1st. The entry to establish the fund is recorded by debiting petty cash for $500 and crediting cash for $500. The only time that petty cash is debited is when the fund is established or increased.

3. Example Exercise 4
At the end of August, the petty cash fund includes receipts for the following items:
Office supplies $380
Postage (debit Office Supplies)
Store supplies
Miscellaneous administrative expense
Total $467
At the end of the month, the petty cash fund includes receipts for various items including office supplies, store supplies and other miscellaneous expenses. The appropriate accounts are debited [CLICK] and Cash is credited. Note that a check in the amount of $467 is given to an employee, called the petty cash custodian, who cashes the check and administers the fund.

4. 2
Example Exercise 4 4
(a)
In this example exercise, a petty cash fund is established for $500 [CLICK]. Then the fund is replenished at the end of the month for the amounts expended. First, let’s look at the journal entry for the establishment of the fund [CLICK]. Petty cash is debited and cash is credited for $500.

5. 2 Example Exercise 4 Office supplies $300 (b)
Miscellaneous administrative expense
Total $375
Amount left in the fund
Cash shortage $495
Original amount
Cash Shortage $ 5
(b)
Next, we must record the journal entry to replenish the petty cash fund for expenses. Note that the total expenses [CLICK] are $375, or 300 plus $75 and the amount left in the fund is $120 [CLICK]. Since the petty cash fund was established at $500, we have a cash shortage of $5 [CLICK] that must be recorded as a debit to Cash Short and Over.

6. 2
Example Exercise 4 4
(b)
Here is the resulting journal entry.

7. Example Exercise 4 4  For Practice: PE 4A, PE 4B
4A, 4B
Refer to Practice Exercises PE 4A and PE 4B for practice on handling a petty cash fund.
 For Practice: PE 4A, PE 4B