Question

A petty cash fund of $500 is established on October 1. The entry to journalize this transaction is debit ________ and credit ________.

Answer 1

The entry to journalize establishing a petty cash fund of $500 is to debit Petty Cash and credit Cash. This reflects the transfer of funds from Cash to Petty Cash to account for small business expenses.

Step-by-step explanation:

When establishing a petty cash fund of $500 on October 1, the journal entry to record this transaction would be a debit to Petty Cash and a credit to Cash. Debiting Petty Cash increases the asset account, which represents the fund's cash on hand, while crediting Cash reduces the company's main cash account. This is because establishing a petty cash fund involves transferring a small amount of cash from the main Cash account to the Petty Cash account for minor business expenditures.

The journal entry is as follows:

• Debit: Petty Cash $500
• Credit: Cash $500