How is the petty cash fund established in the journal?

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Study for the Accounting CBE Exam. Gain insights with flashcards and multiple-choice questions, each paired with detailed explanations. Prepare for your accounting certification!

Multiple Choice

How is the petty cash fund established in the journal?

Explanation:
Establishing a petty cash fund is a reallocation of cash from the main cash account into a separate petty cash asset. The correct entry records increasing the petty cash asset and decreasing the general cash account, so you debit Petty Cash and credit Cash. This shows that cash is being set aside to form the petty cash fund while reducing the amount available in the primary cash account. The opposite direction would imply moving funds back into the main cash account or increasing cash, which isn’t what establishing the fund does.

Establishing a petty cash fund is a reallocation of cash from the main cash account into a separate petty cash asset. The correct entry records increasing the petty cash asset and decreasing the general cash account, so you debit Petty Cash and credit Cash. This shows that cash is being set aside to form the petty cash fund while reducing the amount available in the primary cash account. The opposite direction would imply moving funds back into the main cash account or increasing cash, which isn’t what establishing the fund does.

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