3. CHAPTER TWENTY FIVE PETTY CASH AND OTHER SPECIAL CASH PROCEDURES

4. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 25-3 1. Set up and use a petty cash fund. 2. Prove and replenish a petty cash fund. 3. Use a change fund and provide travel advances. 4. Account for cash shortages and cash overages. PETTY CASH AND OTHER SPECIAL CASH PROCEDURES Objectives:

5. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 25-4 Setting Up the Petty Cash Fund The size of the petty cash fund is determined by the needs of each business. To establish a petty cash fund, a new asset account called Petty Cash is debited. Cash is credited.

6. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 25-5 Using the Petty Cash Fund To obtain a payment from the fund, it is necessary to fill out a form called a petty cash voucher. This form is prepared in ink or typewritten. A receipt should be included with the voucher for payment.

7. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 25-6 Proving the Petty Cash Fund The total of the cash left in the fund and the vouchers should equal the beginning balance of the fund.

8. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 25-7 Replenishing the Petty Cash Fund First, prove the petty cash fund. Cancel all vouches by marking them PAID. Prepare replenishment journal entry.

9. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 25-8 Replenishing the Petty Cash Fund (continued) The journal entry is a debit to the accounts listed on the vouchers. The credit is Cash.

10. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 25-9 Other Cash Funds Some businesses have other cash funds in the place of business. There may be a change fund or a fund for travel expenses. They all operate the same way.

11. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 25-10 Cash Shortages and Overages As the funds are proven from the cash accounts, businesses may discover a shortage or overage. Usually the amounts are within cents or dollars of the beginning balances.

12. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 25-11 Cash Shortages and Overages (continued) This account provides an avenue for accounting for the differences. If the differences are severe the management of cash for the business should be examined.

13. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 25-12 Accounting Terminology Cash over Cash short Change fund Petty Cash Fund Petty cash voucher Proving petty cash Replenishing petty cash Travel advances

14. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 25-13 Chapter Summary The petty cash fund is used for small cash payments. A petty cash voucher must be prepared to explain each payment. When the petty cash fund is set up, an asset account called Petty Cash is debited.

15. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 25-14 Chapter Summary (continued) The Petty Cash fund is replenished at the end of each month and at any other time when the money is low. A check is issued for the total amount spent.

16. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 25-15 Chapter Summary (continued) The petty cash fund is one common type of fund. Other funds a business may use include change funds or travel funds.

17. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 25-16 Chapter Summary (continued) All cash funds should be proved often. It is also necessary to prove the cash receipts in a cash register. Cash shortages and overages must be recorded. The Cash Short or Over account is used for this purpose.

18. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 25-17 Investigating on the Internet As a research assignment, find the Wachovia ® web site and report sources of information that might concern handling of cash.

19. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 25-18 1. The petty cash fund is used for small cash payments. 2. Cash funds should be proven at the end of each month within the fiscal period. 3. Other cash funds that businesses use include change funds and travel funds. Topic Quiz Answer the following true/false questions: TRUE FALSE TRUE

20. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 25-19 (Return to Topic Quiz) 2. Cash funds should be proven at the end of each month within the fiscal period. FALSE Cash funds should be proven daily, at the minimum.