Alright, so every now and then the company is going to have to purchase just mice. Elaine ius stuff like supplies here and there or maybe pay some delivery expenses. Let's see how they'll handle these trivial expenses. So when they spend money on these trivial things like I said, such as delivery or supplies. Now when I say supplies here, this isn't like the monthly order of supplies where they order a bunch of supplies, maybe the printer's out of paper and they have to run to staples real quick or office depot and just grab a, you know, a pack of paper. This is gonna be what we do with petty cash. So petty cash, it's a small cash fund, a small cash fund for paying these trivial expenses. Okay, so the idea here is that we don't want to be making journal entries all the time for you know, maybe a $5 purchase here and there. So what we'll do is have this petty cash on hand. So to establish a petty cash fund. The first thing we need to do is for the company to a point. So the company's creates the petty cash fund by appointing a custodian. So there's going to be somebody in charge of the petty cash and they're gonna give them the money. They're just gonna take the money and give it to them like in our example here. So clutch prep, appoints Alvaro the office manager to be in charge of the new petty cash fund, giving him $100. So to establish the petty cash fund, we're gonna make one journal entry here and this is going to be to debit petty cash. So this is kind of like a subsection of cash. We have like this separate bit of cash in the petty cash fund. So notice it's a debit because petty cash is still an asset, right? This is still the company's money. So we're going to debit it, it's an asset and we're gonna take it out of our regular cash. So we're going to credit cash. So it's coming out of our bank account and now it's going to be in Alvaro's hands. So we're going to debit petty cash for 100 credit cash for 100. Nothing too crazy there. Right? So we just literally move this cash out of the bank account into Alvaro's basically pocket to hold for us. So notice nothing really happens here with our assets here. We have 100 increase to petty cash and our regular cash account, like our bank account goes down by 100. So what you'll notice is that Alvaro's gonna have this money and he's gonna be spending it. He's he's in charge of the office manager ups comes and charges us a delivery fee for something. Well, he's going to take money out of the petty cash to pay for that. So throughout the period we'll see that the custodian will purchase items with the petty cash. So whenever the custodian is purchasing these items. Well, there's gonna be two things they have to keep track of. First. The custodian must keep the vendor receipts and by keeping those receipts will be able to count, you know how much of the petty cash he's spent and he'll keep an internal system as well. He'll have internal pre numbered petty cash vouchers, we call them vouchers, but this is basically just a system and it's pre numbered as an internal control so that there's no missing numbers, no random use of petty cash. Maybe Albert wanted to buy some beer. Well we would notice that there's a missing receipt or something like that. Okay, so what you'll notice is as he's spending this money as he's paying these delivery fees, he's running the staples to buy paper. We're not gonna make any journal entries. There's no journal entries are made while he's making these purchases. Okay. The journal entries are gonna be made when we replenish the fund. Alright, so let's pause here and let's take care of that journal entry in the next video

Alright. So some time has passed, maybe a month has passed and Alvaro realizes that the petty cash fund is running low. Maybe he finds he's got 10, 12 bucks left in it. Well, he's gonna go and say, hey guys, we need to replenish the petty cash fund. So this is how this process goes eventually. We're gonna have to replenish the fund as he spends the money. So let's go ahead through our example. Alvaro submits a request for an $84 check to replenish the petty cash fund. So Albert's gonna check his receipts. And he showed he checks in the petty cash box which includes $42 he spent on postage, $18 on supplies and $24 for deliveries. So now that we know how much he spent noticed this could have been several different things he's posted out right. A few deliveries have come in. So we're not keeping track of each one by itself, we're gonna keep track of them kind of in batches like this. So what we're gonna do is we're gonna have postage expense here. So we're gonna have our postage expense that will finally post And notice it's a debit to the postage expense as we would expect for $42 And we've got supplies expense. So notice this is another way we can increase our supplies expense. Usually when we deal with supplies expense, we were doing it with our adjusting entries, right? We would have our supplies and when we studied adjusting entries, we had our supplies expense in there. Well, we might have just small, trivial expenses for supplies like those runs to staple for for some paper. So here we'll have $18 in supplies expense. And then delivery expense. So we've got three expenses here we're taking care of. And now we're finally posting them to the journal notice before when he actually made these purchases, we had not made any journal entries, were finally making that journal entry now. So we've got our debits and now we have to credit something here. So the petty cash fund already had $100. So remember if we think about it, there was this T account here for petty cash. And in the previous journal entry when we established the fund, it already had a debit of $100 there. So instead of doing multiple steps here and taking the money out of petty cash and then putting it back in. What we're gonna do is we're just gonna deal with the cash fund here. So when when the company gives more money to Alvaro to replenish the fund. Well, they're gonna give him those $84. Right? Because if we see we've got $42 in postage, 18 and 24 in delivery. These right here they total $84. Right, so that matches with his his journal that he's been keeping for the petty cash. So what we're gonna do is instead of crediting petty cash here, we're gonna just credit the cash account and give him the money here. So the so at this point the company is gonna give Alvaro 84 more dollars to put in his box and keep track of his petty cash again and he's back up to $100 right in the box. He had spent $84 so there was $16 left in the box and now he's got 84 more dollars in there. He's back up to 100. So our petty cash fund is okay, it's sitting at $100 just like it should be. And now we're gonna take care of those expenses that we've had, right? So this is the little trick with petty cash here is that we're not gonna credit petty cash again, we're gonna leave petty cash as it is at $100 and we're gonna use the cash account to replenish it. Okay? So that's what you want to pay attention to their is that we're not going to credit petty cash and then do another journal entry to fill it up again. It's just all done in one entry just like this. So what happened is we had some expenses that we paid in cash, right, so we're going to decrease our cash account for $84 And we're gonna take our expenses. So I'm not gonna write them all out. But we have expenses and those decrease our income which in essence decrease our equity, right? And those totaled $84. So everything stays balanced here. Petty cash isn't so tough. There's one more little trick that comes up in petty cash, and that's when there's a little discrepancy. Maybe Alvaro's box doesn't totally match up with the receipts. Let's see what happens in that situation in the next video.

Alright. So sometimes when Alvaro goes and does a petty cash transaction, maybe there's pennies that get lost here and there may be something cost $5.34 and the pennies, you know, got lost along the way. Or he took some pennies out of his pocket to fill something in and the petty cash won't totally match up with the receipts. So, let's see what happens in that situation. All right. So now notice Alvaro notes that there's $17 left in his petty cash fund and he asked for an $83 check to replenish the fund. Alvaro's receipts are the same as before. $42 for postage, 18 for supplies and 24 for deliveries. So, if you'll notice just like before we had 42 days dollars plus $18 plus $24 in expenses. And that came out to $84. Right? But notice that Alvaro only asked for an $83 check. There's a dollar that we've gained somewhere along the way. Alvaro does magic like that. He's our office manager and he does great things for us. He just makes dollars appear out of nowhere. But this actually does happen in petty cash where it'll kind of be off by just a little bit. So what do we do in that situation? We're gonna use a special account called cash over and short. Okay, cash over and short. This is where we take those small discrepancies in petty cash and we put them in this account. So sometimes if there's not enough money, well, it'll be short, right, we're short in our petty cash and that's kind of like a loss. And if we're if we have extra money like in this situation that's like a game. So let's do the same as before. We're still gonna have our expenses. So we'll have postage expense For 42. We'll have our supplies expense for 18 and our deliveries delivery expense For $24 here. So remember those, those total $84. But the cash that's coming out of the bank account is only 83. So our credit here to cash Is going to be 83. This is how you're gonna want to pay attention in these petty cash problems. This is usually how they'll test you because it has that one little extra layer of trickiness with this cash over and short account. So this is what you're gonna want to pay attention to your gonna want to put all your expenses first. You're gonna Wanna put your cash and then the discrepancy you're gonna want to see if there's more cash or more credits or more debits. In this case we have more debits, right? The expenses were 84 but our cash was only 83. So what we're gonna need is one more dollar, one more dollar of credits, right for this to balance out and that's gonna be our cash over and short account. Okay, so notice in this case it's a credit, right? So this is kind of like some sort of mice Elaine ius gain. If we were to show our income statement, we wouldn't probably not show the cash over and short account because it's such a small thing. We would probably lump this in with other mice. Elaine es expenses that don't have so much value in them. We would we would lump them together. So it would probably show up on the income statement as you know, my Soleil Gnaeus expense on the income statement. Or sorry, in this case it's not an expense, right? Because Alvaro does his magic and we have some extra money. So this would actually be like a miscellaneous gain in this situation where we have like an extra dollar that came out of nowhere. Cool. So notice our journal entry is balanced. So what happens here? We still have cash decreasing by 83 when we replenish the fund, right? We took $83 out of cash. And what's happening in equity? We had those expenses That totaled 84 just like before. Right, so that's sorry, that's a decrease to our equity In the amount of 84, but this doesn't balance yet. Right? There's that cash over short. So in this situation we were over. So we had this extra dollar that that the company benefited from here. So the cash over or short. I'm gonna put os That was a $1 increase to equity and were balanced out here. We've got an 83 decrease to cash, 83 net, decrease their in equity. So everything balances out. This is the main thing here with petty cash, is to pay attention that when we have this small discrepancy, we're gonna use this cash over and short account that can either be a credit or a debit. If it's a debit, that's because we were short. If it's a credit because we were over. Right? So just pay attention there, Make sure you get all your expenses as debits, your cash account as your credit and then plug in the cash over and short account to make the journal entry balance. Cool, that's about it for petty cash. Nothing too crazy here. Let's go ahead and move on to the next topic.