Peterson Company's petty cash fund was established on January 1 with $500.On January 31,a count of the fund revealed: $105 in cash remaining and vouchers for miscellaneous expenses totaling $400.If the company records both the disbursements and the replenishments to the fund,what is the overall effect on Peterson's financial statements?

Question

Peterson Company's petty cash fund was established on January 1 with $500.On January 31,a count of the fund revealed: $105 in cash remaining and vouchers for miscellaneous expenses totaling $400.If the company records both the disbursements and the replenishments to the fund,what is the overall effect on Peterson's financial statements?
Peterson Company's petty cash fund was established on January 1 with $500.On January 31,a count of the fund revealed: $105 in cash remaining and vouchers for miscellaneous expenses totaling $400.If the company records both the disbursements and the replenishments to the fund,what is the overall effect on Peterson's financial statements? A) Option A B) Option B C) Option C D) Option D

Quizplus · Accepted Answer

Since the amount of petty cash on hand is $105, it will take $395 to replenish the petty cash fund to its imprest balance of $500. Because the miscellaneous expenses paid by the fund totaled $400, there is a cash overage of $5. (Note that an overage of cash represents revenue.) Replenishing the fund will cause total assets (cash) and stockholders' equity (retained earnings) to decrease by $395. Revenues will increase by $5 and expenses will increase by $400, resulting in a decrease in net income of $395. The replenishment is reported as a cash outflow for operating activities.

Peterson Company's Petty Cash Fund Was Established on January 1