Name______

Date______

PETTY CASH AND OTHER

SPECIAL CASH PROCEDURES

Objectives
/ After completing this chapter, you should be able to:
1. Set up a petty cash fund.
2. Use and prove a petty cash fund.
3. Replenish a petty cash fund.
4. Record entries for cash shortages and overages.
Reading Assignment / Read Chapter 25 in your textbook.
Reading Comprehension Exercises / Complete the exercises below and on the next page of this study guide. Then verify your work with the self-check answers at the back of the guide. If you have difficulty or make many errors, reread the chapter in your textbook before continuing.
Text Applications / Complete any exercises and problems in the textbook that your instructor has assigned. Use a separate sheet of paper for the exercises. All the necessary forms for the problems are in your workbook. Use the self-checks in the workbook to verify your solutions to the problems.

EXERCISE 25-1.

Read each of the following statements carefully. In the Answer column, write T if the statement is true or F if it is false.

Answer

1. / Small items that cannot conveniently be paid by check are paid from a petty cash fund. / 1. ______
2. / The Petty Cash account is an owner's equity account. / 2. ______
3. / Both the Cash account and the Petty Cash account appear on the balance sheet. / 3. ______
4. / The petty cash fund is replenished only at the end of each month. / 4. ______
5. / The balance of the Petty Cash account should always reflect the original amount of the fund unless the fund is permanently increased or decreased. / 5. ______
6. / The money for the petty cash fund should be kept in an unlocked desk drawer so that all employees can have easy access to it. / 6. ______
7. / A petty cash voucher should be prepared for each payment from the petty cash fund. / 7. ______
8. / Petty cash vouchers should never be written in pencil. / 8. ______
9. / The money in the petty cash box plus the total of the petty cash vouchers should equal the original amount of the fund. / 9. ______
10. / The petty cash fund is proved each month. / 10. ______
11. / The expense incurred in petty cash transactions are journalized each time the fund is used. / 11. ______
12. / Some firms keep a cash fund to provide travel advances to employees who must go on out-of-town business trips. / 12. ______
13. / Many retailers have a fund for providing change to customers who pay in cash. / 13. ______
14. / Before the cash receipts are deposited in the bank at the end of each day, the change fund is removed and placed in the office safe so that it can be used again the next day. / 14. ______
15. / When a business has cash sales, the money in the cash register must be proved against the audit tape prepared by the register. / 15. ______

Answer

16. / If the cash on hand is less or more than it should be, an entry must be made in the Cash Short or Over account. / 16. ______
17. / Cash shortages are recorded in the cash receipts journal, and cash overages are recorded in the cash payments journal. / 17. ______
18. / The Cash Short or Over account is debited for shortages and credited for overages. / 18. ______
19. / The Cash Short or Over account appears on the balance sheet. / 19. ______
20. / The Cash Short or Over account is considered an expense if it has a debit balance and revenue if it has a credit balance. / 20. ______

EXERCISE 25-2 Some of the accounts used by the Sanchez Company are listed below. Decide how the following transactions should be recorded. Write the names of the accounts to be debited
and credited in each entry. Also show the amount involved.

Cash / Sales / Office Expense
Petty Cash / Advertising Expense / Miscellaneous Expense
Change Fund / Delivery Expense / Cash Short or Over
Transactions
/
Accounts
/
Amounts
1. / Issued Check 323 for $50 to set up a petty cash fund. / 1. / Debit
Credit
2. / Issued Check 337 for $40 to replen-ish the petty cash fund. The expenses incurred were Delivery Expense ($21) and Office Expense ($19). / 2. / Debit
Credit
3. / Issued Check 349 for $40 to increase the petty cash fund. / 3. / Debit
Credit
4. / Issued check 356 for $42 to replenish the petty cash fund. The expenses in-curred were Advertising Expense ($40) and Miscellaneous Exp. ($12). / 4. / Debit
Credit
5. / Issued Check 372 for $100 to set up a change fund. / 5. / Debit
Credit
6. / Recorded the cash sales for the day and a cash overage. The audit tape removed from the cash register showed cash sales of $651. However,
the amount remaining in the register after the change fund was taken out was $654. / 6. / Debit
Credit

See the self-check answers at the back of the study guide booklet.

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Chapter 25