CFAS: Conceptual Framework and Accounting Standards

IA1: Intermediate Accounting Part 1

Petty Cash Fund

Intended Learning Objectives:

 Perform accounting procedures for petty cash fund (Imprest system)

The petty cash fund is money set aside to pay small expenses which cannot be paid
conveniently by means of check. Under the cash control – imprest system, all cash
receipts are deposited intact and all cash disbursement shall be made by means of
checks. However, an enterprise considers inconvenient and impractical to write
checks for small items.

Accounting for Petty Cash Fund – Imprest fund system.

Ite Transaction Journal Entry

m
A A check is drawn to Petty cash fund xx
establish the fund. Cash in Bank xx

B Payment of expenses out
of the fund
No formal entries are made. The petty cashier
generally requires a signed petty cash voucher
for such payments and simply prepares
MEMORANDUM ENTRIES in the petty cash
journal.

The company does not make journal entries at

the time petty cash is disbursed, as the petty
cash vouchers are still with the petty cash
custodian.

C Replenishment of petty Whenever the petty cash fund runs low, a

cash payments. check is drawn to replenish the fund.

The replenishment check is usually equal to

the petty cash disbursements. The cash
custodian submits the signed petty cash
vouchers accompanying receipts and invoices
to the general cashier to request for
reimbursement. It is at the time that the petty

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 cash disbursements are recorded as follows:

Expenses xx
Cash in Bank xx

D Adjusting entry At the end of the accounting period, it is

necessary to adjust the not replenished
expenses in order to state the correct petty
cash balance as follows:

Expenses xx
Petty cash fund xx

The adjustment is to be reversed at the

beginning of the next accounting period.

E To increase the petty cash An increase in the fund is recorded as follows:

fund
Petty cash fund xx
Cash in bank xx
F To decrease the petty A decrease in the fund is recorded as follows:
cash fund
Cash in bank xx
Petty cash fund xx

Let’s do it!

Problem 1
The following petty cash transaction of Sam Makulet Company for 2018 are
reported:

Dec 1 The entity established an imprest fund of P10,000

20 Payments were made from petty cash fund for the following items:

Transportation 2,300
Representation expenses 3,400
Office supplies 4,200

21 Petty cash vouchers were submitted to request reimbursement for the

above expenditures. A check for P9,900 was issued to replenish the
petty cash fund.
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 31 No replenishment of the petty cash fund is made. A count and review
of the fund revealed the following composition:

Bills and coins 2,200

Petty cash vouchers for
Transportation 1,500
Office supplies 2,500
An employee advance 3,000
Representation 800

Required: Prepare the proforma journal entries

Problem 2
An entity established an imprest fund of P20,000 on November 10, 2018.
Replenishment of the fund took place on November 29, 2018 with the following
petty cash items:
Currency and coins 2,000
Supplies 5,000
Telephone 1,800
Postage 1,200

No replenishment of the fund until December 31, 2018. Upon checking and
reviewing the petty cash fund, the following items were noted:

Currency and coins 7,000

Supplies 1,500
Postage 500
Miscellaneous expense 1,000

On February 1, 2019, the fund was replenished and increased to 15,000. The
composition of the fund are as follows:

Currency and coins 1,000

Supplies 4,500
Postage 3,000
Miscellaneous expenses 1,500

Required: Prepare the proforma journal entries

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