Replenishing the Petty Cash Fund

Payments decrease the fund, so periodically the fund must be replenished. Suppose that on August 31, the petty cash fund holds $118 in cash and $80 in petty cash tickets (ticket no. 101 for $60 for office supplies and ticket no. 102 for $20 for a delivery).

You can see $2 is missing:

To replenish the petty cash fund, you need to bring the cash on hand up to $200. The company writes a check, payable to Petty Cash, for $82 ($200 imprest balance $118 cash on hand). The fund custodian cashes this check and puts $82 back in the fund box. Now the fund box holds $200 cash as it should.

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The petty cash tickets tell you what to debit and the check amount tells you what to credit, as shown in this entry to replenish the fund:

Missing petty cash funds are debited to a new account, Cash Short & Over. In this case, $2 was missing, so we debit Cash Short & Over for the missing petty cash. Another way to look at this is that we needed another $2 debit to make the journal entry balance

Why wasnt Petty Cash debited when the fund was replenished?

The Petty Cash account keeps its $200 balance at all times. The Petty Cash account is used in a journal entry only when the fund is started (see the August 1 entry) or when its amount is increased or decreased. If the business increases the fund amount from $200 to $250, this would require a check to be cashed for $50 and the debit would be to Petty Cash. When replenishing the fund, the company debits either the associated expense incurred or the asset purchased with the funds.

At times the sum of cash in the petty cash fund plus the tickets may exceed the fund balance. Consider the previous example. Assume the petty cash ticket no. 102 for delivery was for $30 instead of $20. Because we know the amount of the petty cash tickets and the amount of cash on hand, we can find out the amount of cash shortage or overage.

In this case, the cash on hand plus petty cash tickets ($208) is more than the fund balance ($200). A cash overage exists. The journal entry to replenish the fund would be:

We know the total debits are We know the check to replenish the fund was still $82 (credit to Cash) because the fund balance should total $200 and there was $118 in the petty cash box. For this situation, we need an $8 credit to make the journal entry balance, a gain, which is credited to Cash Short & Over.