Internal Controls over Cash and Accounting for Petty Cash Fund

True or False: Indicate your answer on the space before the number.

TRUE 1. The voucher system I an internal control over cash disbursements which require that Every
disbursement should be supported by a written authorization embodied in a document called the
Voucher.
TRUE 2. Cash shortages are initially debited, while cash overages are initially credited, to the
“Cash Shortage or Overage” account pending due investigation.
FALSE3. The “Petty Cash Fund” account is credited each time a petty cash disbursement is made.
TRUE 4. An entity’s Petty Cash Fund (PCF) has an imprest balance of P100. At the end of the Period, the
PCF consists of P20 coins and currencies. To replenish the PCF, the entity should write a
Check amounting to P80.
TRUE 5. An entity’s PCF has an imprest balance of P100. At the end of the period, the PCF
Includes P30 unreplenished disbursements. The amount of PCF to be reported in the financial
Statements is P70.

Skill-building Activities
PROBLEM SOLVING. PROVIDE WHAT IS ASKED IN EACH ITEM.
1. Transactions relating to the petty cash fund (PCF) of Bier Co. are as follows:
Oct. 1, 20x1 A petty cash fund with an imprest balance of P40,000 was established.
Oct. 1-31, 20x1 Disbursements were made for the following
- Office supplies expense, P6,880
- Transportation expense, P12,346
- Freight out, P17,627
Oct. 31, 20x1 - Cellphone load (Telecommunications expense, P2,502
Currencies and coins in the petty cash box amoun to P2,390. Replenishment is
made.
Requirement: Provide the journal entries. (Use a suspense account for any discrepancy in the fund.)

Oct. 1, 20x1 Petty cash fund 40,000

Cash in bank 40,000

Oct. 1-31, 20x1 No journal entry

Oct. 31, 20x1 Office supplies expense 6,880

Transportation expense 12,346
Freight out 17,627
Telecommunications expense 2,502
Cash overage 1,745
Cash in bank 37,610

2. Assume that the PCF is not replenished. What amount of PCF will be reported in the Oct. 31, 20x1
financial statements?
  Answer: ₱2,390 – equal to the currencies and coins.

3. On December 31, 20x1, the petty cash fund of Bark Co., with a P30,000 ledger balance, consists
of the following:
Currencies and coins 1,020
Vouchers for various PCF disbursements 26,820
An envelope containing employees' contributions for a weekend outing amounting to 9,600
Check drawn by Bark Co. to the order of the petty cash custodian 1,200
Personal check drawn by the petty cash custodian 960

Requirements:
a. How much petty cash fund will be included as part of cash in the Dec. 31, 20x1 statement of
financial position?

Currencies and coins 1,020

Check drawn by Bark Co. to the order of the petty cash custodian 1,200
Petty cash fund included as part of cash 2,220

b. What is the adjusting entry if the fund is not replenished on Dec. 31, 20x1? (Any discrepancy is
chargeable to the petty cash custodian.)
Dec. 31, 20x1 Various expenses 26,820
Receivable from petty cash custodian 960
Petty cash fund 27,780

Check for Understanding (Graded Quiz)

PROBLEM SOLVING. PROVIDE WHAT IS ASKED IN EACH ITEM WITH COMPLETE SOLUTION.

Use the following information for the next two questions:

Tomay Co. established a petty cash fund of P40,000. Fund disbursements during the period were P8,025
for office supplies, P11,533 for miscellaneous selling expenses, and P7,805 for miscellaneous
administrative expenses. The petty cash count at the end of the period revealed total bills and coins of
P12,834.
1. Prepare the journal entry to replenish the petty cash fund.
office supplies 8,025
miscellaneous selling expenses 11,533
miscellaneous administrative expenses 7,805
Cash overage 197
Cash in bank (40,000-12,834) 27,166

2. To replenish the fund at the end of the period, Tomay should write a check in the amount of
 Answer: 27,166 – Total of cash in bank
Use the following information for the next two questions:
An entity established a petty cash fund (PCF) of P30,000 on October 1, 20x1. During the month,
P24,260 have been disbursed from the PCF, and by the end of the month, the PCF box contains
coins and currencies amounting to P5,625.

3. Provide the journal entries including the replenishment of the fund at month-end. Use a suspense
account to record any discrepancy.
October 1, 20x1 Petty cash fund 30,000
Cash in fund 30,000
No journal entry for PCF disbursement

Coins and currencies 5,625

Petty cash vouchers 24,260
Total cash 29,885
Ledger balance 30,000
Cash overage 115
4. Assume that the PCF is not replenished and financial statements are prepared at month-end.
Assume further that all discrepancies in the PCF are chargeable to the petty cash custodian. Provide
the adjusting entry and determine the amount of PCF that will be reported in the financial
statements.
PCF adjusted:
October 1, 20x1 Various expense 24,260
Receivable from custodian 115
Petty cash fund 24,375