question archive On January 1 of this year, Gamma, Inc
On January 1 of this year, Gamma, Inc
Subject:AccountingPrice:2.84 Bought3
On January 1 of this year, Gamma, Inc., established a Petty Cash Fund with $250. To record the establishment of the Petty Cash Fund, Gamma's accountant will: O a. debit Petty Cash Fund for $250 and credit Cash for $250. O b. debit Petty Cash Fund for $250 and credit Inventory for $250. O c. debit Cash for $250 and credit Petty Cash Fund for $250. O d. debit Receivables for $250 and credit Petty Cash Fund for $250.
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The correct answer is (a) Debit Petty Cash Fund for $250 and Credit Cash for $250.
Supporting explanations:
When petty cash fund is established, the cash is transferred from cash account to Petty Cash Fund so the cash decreases so it is credited because cash is an asset that always has debit balance so a credit decreases its balance and Petty Cash Fund is debited for the amount increase.
Therefore, the correct journal entry would appear as -
| Journal Entry | |||
| Date | Account Titles and Explanation | Debit | Credit |
| Jan. 1 | Petty Cash Fund | $250 | |
| Cash | $250 | ||
| (To record the establishment of petty cash fund) | |||
Hence, the correct option is (a).
