Gross Company established a $250 petty cash fund on January 1.On March 1,the fund contained $160 in receipts for miscellaneous expenses and $85 in cash.If the entries to record the disbursements and to replenish the fund are combined,what effect will the resulting entry have on the elements of the financial statements?

Question

Quizplus · Accepted Answer

Since the amount of petty cash on hand is $85,it will take $165 to replenish the petty cash fund to its imprest balance of $250.Because the miscellaneous expenses paid by the fund totaled $160,there is a cash shortage of $5 (Note that a cash shortage is an expense that is recorded by debiting the Cash Short and Over account. ).The entry will cause total assets (cash)and stockholders' equity (retained earnings)to decrease by $165.Expenses will increase by $5 and net income will decrease by that same amount.

Gross Company Established a $250 Petty Cash Fund on January