7.3 Petty Cash Fund

Question 1

What is a Petty Cash Fund?

Answer 1

maintains internal controls over small cash disbursements by ensuring that all amounts are accounted for and all transactions are recorded.

Question 2

What are the three steps in Petty Cash Fund?

Answer 2

1. establishing the fund
2. making payments from the fund
3. replenishing the fund

Question 3

Establishing the Fund

Answer 3

1. appoint a petty cash custodian to be responsible for the fund
2. determine the size of the fund (3-4 week period payment range)

Question 4

Making Payments From the Fund

Answer 4

1. The petty cash custodian has the authority to make payments from the fund in accordance with management policies.
2. Each payment from the fund should be documented on a pre-numbered petty cash receipt, signed by both the custodian and the person who receives the payment.
3. The sum of the petty cash receipts and money in the fund should equal the established total at all times.

An accounting entry is not recorded when a payment is made from the petty cash fund. Instead, it is recorded when the fund is replenished.

Question 5

Replenishing the Fund

Answer 5

1. When the money in the petty cash fund reaches a minimum level, the company replenishes the fund
2. Individual prepares schedule (or summary) of the payments that have been made and sends the schedule with petty cash receipts + other documentation to the controller’s office
3. Receipts and supporting documents are examined and verified
4. The request is approved and a cheque is issued to restore the fund to its established amount
5. Documentation is stamped “Paid”

Question 6

Replenishing the Fund Internal Control

Answer 6

1. segregation of duties
2. documentation procedures
3. independent checks of performance

Question 7

How to Determine how much to Replenish the Fund?

Answer 7

Subtract the cash remaining from the petty cash fund balance.

Question 8

Totalling the Petty Cash Receipts

Answer 8

You will find any cash over or shortages

This is the:

difference between the cash needed to replenish the fund and the total of the petty cash receipts.

Question 9

Petty Fund Journal Entries

Answer 9

Only made when Petty Cash fund is established and replenished

Question 10

Cash Over and Short Debit Balance

vs

Cash Over and Short Credit Balance

Answer 10

A debit balance in Cash Over and Short is reported in the income statement as a miscellaneous expense.

A credit balance in the account is reported as miscellaneous revenue.