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Financial & Managerial Accounting
Found in: Page 309
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Kiona Co. set up a petty cash fund for payments of small amounts. The following transactions involving the petty cash fund occurred in May (the last month of the company’s fiscal year).May 1 Prepared a company check for $300 to establish the petty cash fund.15 Prepared a company check to replenish the fund for the following expenditures made since May 1.

a. Paid $88 for janitorial expenses.

b. Paid $53.68 for miscellaneous expenses.

c. Paid postage expenses of $53.50.

d. Paid $47.15 to The County Gazette (the local newspaper) for advertising expense.

e. Counted $62.15 remaining in the petty cashbox.

16 Prepared a company check for $200 to increase the fund to $500.

31 The petty cashier reports that $288.20 cash remains in the fund. A company check is drawn to replenish the fund for the following expenditures made since May 15.

f. Paid postage expenses of $147.36.

g. Reimbursed the office manager for mileage expense, $23.50.

h. Paid $34.75 in delivery expense for products to a customer, terms FOB destination.

31 The company decides that the May 16 increase in the fund was too large. It reduces the fund by $100, leaving a total of $400.

Required

Analysis Component

2. Explain how the company’s financial statements are affected if the petty cash fund is not replenished and no entry is made on May 31.

Answer

Net Income, Equity and Total Assets would be overstated by $211.8.

See the step by step solution

Step by Step Solution

Step-by-Step SolutionStep 1: Introduction to topic

Petty cash replenishment- Petty cash replenishment means adding the money to the petty cash box again so that the balance in petty cash box maintains at a desired or optimum balance.

Step 2: Detailed explanation

If the May 31 replenishment is not made and no entry is recorded, several expenses would not be recognized. Both net income and equity would be overstated by $211.8 (147.3+ 23.50+ 34.75+6.19). Also, the petty cash asset and total assets would be overstated by $211.8.

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