Accounting for a Petty Cash Fund?

📌 CONCEPT: A petty cash fund is a small amount of money kept by a business to make minor payments for office expenses. It is usually maintained by the cashier or an authorized person. The fund is replenished periodically by depositing money into it and withdrawn for making payments.

📐 RULE / FORMULA: Petty cash transactions are recorded in the cash book by passing a journal entry to increase or decrease the petty cash fund account. The amount deposited is debited to the bank account and credited to the petty cash fund account, and the amount withdrawn is debited to the petty cash fund account and credited to the expenses account.

💡 WORKED EXAMPLE: Vimala has a petty cash fund of Rs. 5,000. She deposits Rs. 2,000 and withdraws Rs. 800 for office expenses. The journal entry to record the transaction is: Debit: Petty Cash Fund (Rs. 800) Credit: Office Expenses (Rs. 800)

⚠️ COMMON MISTAKE: Students often forget to pass a journal entry to record the deposit and withdrawal of petty cash fund, which leads to incorrect recording of transactions.