Which of the following types of confirmations is the most reliabel
A. Positive Confirmations B. Negative Confirmations
The correct answer and explanation is:
The correct answer is D) debit to Cash for $255.
Explanation:
A petty cash fund is a small amount of money kept on hand for minor expenses that are typically not paid by check. In the case of this question, the petty cash fund initially had $300. After some time, there is $39 in cash and $255 in receipts, meaning that the fund has been used to pay for expenses.
To replenish the fund, the company needs to restore the cash balance to the original amount of $300. The difference between the original balance and the remaining cash is:
$300 (original balance) – $39 (remaining cash) = $261.
However, there are receipts for expenses amounting to $255. The journal entry to replenish the petty cash fund will include:
- Debiting the relevant expense accounts (such as Office Supplies, Travel, or Meals) for the total amount of the receipts. This ensures that the expenses are recorded in the proper accounts.
- Crediting Cash for $261, which represents the amount that needs to be taken from the main cash account to restore the petty cash fund back to its original amount of $300.
Therefore, the cash account is reduced by $261 (since the petty cash fund is being replenished), and the various expenses are debited based on the receipts submitted. The debit to Cash for $255 reflects the need to top up the petty cash fund by this amount. The remaining $6 (which accounts for the discrepancy between the total receipts and the amount required to restore the petty cash fund) is usually adjusted as part of the petty cash handling process.
Thus, the correct entry is a debit to Cash for $255, which ensures the proper replenishment of the fund.