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Petty cash question


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#1 makaylagardner6

makaylagardner6

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Posted 21 December 2012 - 11:14 PM

How does petty cash affect expenses?

#2 mebond

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Posted 27 December 2012 - 03:23 AM

Petty Cash is a current asset account. You established the fund by cashing a check drawn on the company’s regular checking account and giving the money to a petty cash custodian. No expense is involved in this transaction since the company is simply creating the asset account Petty Cash by reducing another asset account, cash in the bank.
An expense occurs when the company pays expenses using this petty cash fund such as postage, supplies etc. The expenses will be recorded in the general ledger when the petty cash fund is replenished.
Replenishing the fund is done at the end of each accounting period so that the expenses can be recorded in the period they were paid.