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 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 $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 and is recorded by crediting the Cash Short and Over account. )The entry 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