The owner of the King Company established a petty cash fund amounting to $425. What is the effect on the financial statements of the entry to record this transaction?

Question

Quizplus · Accepted Answer

Establishing a petty cash fund increases one asset (petty cash) and decreases another asset (cash), so it has no overall affect on assets. Because both of those accounts are considered cash on the statement of cash flows, it is not reported as a cash outflow.

The Owner of the King Company Established a Petty Cash