Okay, what is a petty cash system?
Okay, well, you guys understand that voucher system that I just described; right?
Well, maybe Tony is the salesperson for my company and he needs to print out a report
that he's going to take to a client in a couple hours and we're out of toner cartridge.
Well, we can't go through that whole process, can we?
So a lot of times what a company will have is a little petty cash box where they keep,
you know, a couple of hundred bucks in there and they just give you some money to go run
to the store and you come back with change and also what?
>>Student: A receipt.
>>Mr. Krug: A receipt.
Now, if we establish that fund for $200 I guess there is the chance that somebody could
steal, but the most you'll lose is $200, which would be unpleasant, you will probably yell
at somebody, but it's not going to put your company under, is it?
Okay, so that is the exception to the voucher system is when we establish what is called
a petty cash system.
Now, if you look at your slides, going to the computer, they have some different slides
that they have.
I don't really think that is as helpful, but I encourage you to look through that example.
But I instead want to just go through to close out the class a real quick example of a petty
cash system.
All right, Timmons Company.
Timmons Company establishes a petty cash fund for $100.
This is the first time they've ever done this, okay?
To establish that fund, what we do is this.
We credit cash for $100 and we debit an account called petty cash.
Now, these are both cash and they're both assets.
We're mainly just moving -- oops, we're going the wrong way.
We're mainly just moving $100 out of the bank and putting it into the petty cash box; okay?
We're putting $100 into that cash box; are you with me?
So a few months later or a month later we open up the petty cash because you're going
to have to replenish it every now and then, aren't ya?
Or there's not going to be any cash in there because people have been buying stuff.
So the controller, she finds cash of $24, along with a receipt for postage expense of
40 and a receipt for office supplies for 30. Make the journal entry to replenish the fund.
Account for any shortage or overage that may occur.
Okay, now, this is not a difficult journal entry, but I see people make mistakes on this
all the time.
Go through this 3-step process that I'm going to teach you and you won't make those mistakes.
The first thing I always do is this, I need to credit cash.
I need to credit cash for the amount of cash that I need to replenish the box with.
So we established that fund for $100; right?
How much cash is in there now?
$24.
So how much cash do I need to go from the bank and get to put in that box to bring it
back up to 100?
>>Student: 76.
>>Mr. Krug: 76; right?
Are you with me?
That's the first step is how much cash do you need to put in.
And I'm not crediting petty cash.
I'm not crediting petty cash.
I'm crediting cash.
You can't replenish petty cash with petty cash.
So that's cash.
The next step, the next step I'll put in red, is envision yourself looking through those
receipts and you need to record those on your books.
So we had a postage expense for how much?
>>Student: $44.
>>Mr. Krug: $44?
>>Student: Yeah.
>>Mr. Krug: And we had office supplies expense for 30; is that right?
>>Student: Yeah.
>>Mr. Krug: That's the second step, in red.
Now, you guys know that your debits - your accounts being debited are listed before the
accounts being credited; right?
And eventually I do want those listed first.
However, again, do it in the steps that I'm telling you.
The first step is how much cash do we have to get to bring it up to the desired amount.
Second step is you record your expenses.
Just envision yourself going through those receipts.
The third and final step is you ask yourself does that journal entry balance.
Does this balance?
>>Student: No.
>>Mr. Krug: No.
Which side needs help; debit or credit side?
>>Student: Debit.
>>Mr. Krug: Debit, by how much?
>>Student: $2.
>>Mr. Krug: $2.
So what we're going to do is we are going to debit an account called cash short/over
or sometimes it's called cash over and short.
If you're debiting that, then it's like an expense with a debit balance and you're short.
If you have to credit it to make that journal entry balance, it's like a little revenue.
Now, do you think you're usually over cash or short cash?
>>Student: Short.
>>Mr. Krug: Short.
Because if you pay somebody too little change, they'll probably call you on it and tell you;
right?
But if you pay them too much a lot of times they'll just walk out.
They're not going to catch you; right?
They're not going to say anything.
Are you with me?
So do these in that order: blue, red, pink.
Otherwise what I see is they do this first and then they improperly credit cash for 74
and that's wrong; okay?
So that's why I say to do that in this order.