Which of the following is the correct journal entry to record the reimbursement of the petty cash fund when expenses have been incurred and paid from petty cash?

• A. Debit Cash and credit Petty Cash
• B. Debit Petty Cash and credit various expense accounts
• C. Debit various expense accounts and credit Cash
• D. Debit various expense accounts and credit Petty Cash

Answer: (C)

Verified step by step guidance

1. Understand the purpose of the petty cash fund: It is a small amount of cash kept on hand to pay for minor expenses. When expenses are incurred and paid from petty cash, the fund needs to be reimbursed to maintain its balance.
2. Identify the accounts involved: Expenses incurred from petty cash are recorded in various expense accounts (e.g., Office Supplies Expense, Travel Expense). The reimbursement involves reducing the cash account since the petty cash fund is replenished.
3. Determine the correct journal entry: When reimbursing the petty cash fund, you need to debit the various expense accounts to record the expenses and credit the Cash account to reflect the reduction in cash used for reimbursement.
4. Avoid common mistakes: Do not debit the Petty Cash account during reimbursement. The Petty Cash account represents the fund's established balance, which remains unchanged unless the fund size is increased or decreased.
5. Prepare the journal entry: Debit the appropriate expense accounts (e.g., Office Supplies Expense, Travel Expense) for the amounts spent and credit the Cash account for the total reimbursement amount.