Cash and bank: answer key
Answer key: the accepted entries with the amounts of the worksheet, and why.
Convention: United States (US textbooks)
Setting up a petty cash fund
A company establishes a petty cash fund of $300.00 for small office expenses. A check for $300.00 is written and cashed, and the money is given to the petty cash custodian.
Assumptions: Imprest system: the Petty Cash account changes only when the fund is set up, enlarged or reduced.
Account Debit Credit Petty Cash $300.00 Cash $300.00 Why
Under the imprest system the fund is set up by debiting Petty Cash and crediting Cash for $300.00. Payments made from the fund are recorded only when it is replenished.
Replenishing petty cash after several small expenses
The petty cash fund is replenished to its fixed amount with a check. The receipts in the fund show: office supplies $46.00, postage stamps $23.00, and the repair of a door lock $85.00. The cash left in the fund plus the receipts equals the fund’s fixed amount.
Assumptions: Imprest system: payments from the fund are recorded when the fund is replenished. Office supplies are expensed when bought. Any sales tax is included in the amounts.
Account Debit Credit Supplies Expense $46.00 Postage Expense $23.00 Repairs Expense $85.00 Cash $154.00 Why
Replenishing an imprest fund records each expense from the receipts and credits Cash for the total, $154.00. Petty Cash is not touched: the fund keeps its fixed balance.
Customer check returned NSF
A customer paid its account of $1,250.00 with a check, which the company deposited. Today the bank statement shows the check returned NSF (not sufficient funds): the bank deducts $1,250.00 and charges a fee of $12.00 for the returned check.
Assumptions: The company still expects to collect the amount. It bears the bank fee itself (it does not charge it to the customer).
Account Debit Credit Accounts Receivable $1,250.00 Bank Service Charges $12.00 Cash $1,262.00 Why
The customer’s payment is undone, so Accounts Receivable is debited again for $1,250.00. The fee ($12.00) is Bank Service Charges. Cash falls by $1,262.00.
Bank collects a note receivable for the company
The bank statement shows that the bank collected a note receivable on the company’s behalf: the face value of $5,000.00 plus interest of $150.00, less a collection fee of $25.00. The company learns of it while preparing its bank reconciliation.
Assumptions: No interest on the note was accrued before: all of it is earned now.
Account Debit Credit Cash $5,125.00 Bank Service Charges $25.00 Notes Receivable $5,000.00 Interest Revenue $150.00 Why
Cash rises by the net amount credited, $5,125.00. The note leaves Notes Receivable at its face value ($5,000.00), the interest ($150.00) is Interest Revenue and the fee ($25.00) is Bank Service Charges.
Bank fee and interest found in a bank reconciliation
While preparing the monthly bank reconciliation, a company finds two items on the bank statement that are not in its books: a service charge of $35.00 and interest of $16.00 earned on the account.
Assumptions: No tax is withheld on the interest.
Account Debit Credit Bank Service Charges $35.00 Interest Revenue $16.00 Cash $19.00 Why
The service charge ($35.00) is Bank Service Charges and the interest ($16.00) is Interest Revenue. Cash changes by the difference: it falls by $19.00. Two separate entries are accepted too.
Cash shortage found at the cash count
At the month-end count, the cash on hand in the register is $483.70, while the company’s records of cash on hand show $496.20. No reason for the difference can be found.
Assumptions: The company records unexplained cash differences in a Cash Short and Over account; no employee is held responsible.
Account Debit Credit Cash Short and Over $12.50 Cash $12.50 Why
The shortage is $496.20 − $483.70 = $12.50. Cash is credited to bring it down to the amount counted, and Cash Short and Over is debited (a debit balance is an expense).
Customer pays two invoices by one bank transfer, less a bank fee
A customer pays two invoices on account, of $2,360.00 and $1,180.00, with a single wire transfer. The company’s bank deducts an incoming wire fee of $6.50 and credits the rest to the company’s account.
Assumptions: The invoices were recorded when they were issued. The company bears the bank fee.
Account Debit Credit Cash $3,533.50 Bank Service Charges $6.50 Accounts Receivable $3,540.00 Why
Accounts Receivable falls by both invoices, $3,540.00. Cash rises by the amount actually credited, $3,533.50, and the fee ($6.50) is Bank Service Charges. Recording the full $3,540.00 in Cash and the fee as a separate payment is also accepted, since Cash nets to the same amount.
Not in this convention: Depositing the cash takings in the bank; Withdrawing cash from the bank, with a fee; Transferring money between two of the company’s bank accounts
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