Shawnee Co. set up a petty cash fund for payments of small accounts. The followi

Question

Shawnee Co. set up a petty cash fund for payments of small accounts. The following transactions involving the petty cash fund occured in May (the last month of the company's fiscal year).

May 1 prepared a company check for $250.00 to establish the petty cash fund.
15 Prepared a company check to replenish the fund for the following expenditures made since May 14
a. Paid $78.00 for janitorial services.
b. Paid $63.68 for miscellaneous expenses.
c. Paid postage expenses of $43.50.
d. Paid $75.15 to the county Gazette (the local newspaper) for an advertisement.
e. Counted $11.15 remaining for petty cash.

16 Prepared a company check for $200.00 to increase the fund to $450.00.
31 The petty cashier reports that $293.39 cash remains in the fund. A company check is drawn to replenish the fund for the following expenditures made since May 15.
f. Paid postage expense of $48.36.
g. Reimbursed the office manager for business mileage, $38.50
h. Paid $39.75 to deliver merchandise to a customer, term FOB destination
31 the company decided that the May 16 increase in the funds was too large. It increased the find by $50.00, leaving a total of $400.00



2) Explain how the company's financial statement are affected if the petty cash fund is not replenished and no entry is made on May 31.

Explanation / Answer

If the petty cash funds is not replenished and no entry is made, then on the income statement, expenses are understated and net income is overstated, and on the balance sheet, assets are overstated and owner's equity is overstated.

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