Brooks Agency set up a petty cash fund for $150. At the end of the current period, the fund contained $28 and had the following receipts:

entertainment, $70; postage, $30; and printing, $22.

Required:

(A) Prepare journal entries to record (a) establishment of the fund and (b) reimbursement of the fund at the end of the current period.

Answer with its Explanation:

Journal entries required:

(a). To record establishment of the fund

When the petty cash fund was set up the entry was increase in petty cash and decrease in cash balance of the company which is increase in one asset (Petty cash asset) and decrease in other asset (cash asset).

Dr Petty cash $150

Cr Cash $150

(b). Reimbursement of the fund at the end of the current period.

The entry of spending of money on entertainment $70, postage $30 and printing $22 are all expenses incurred which is increase in expense and increase in the expenses are debited. The cash is paid here which means that the cash asset is decreased which must be credited.

Dr Entertainment expenses $70

Dr Postage expense $30

Dr Printing Expense $22

Cr Petty cash $122