🔹 Bank Reconciliation Entries
A bank is crediting their own cash to deposit into your account. Cash is an asset (+/-), so they credit (reduce) their cash to put it into your account! This is common with a savings account, where interest is added every month.
A bank is debiting their own cash when they take money from your account and add it to theirs! Cash is an asset (+/-), so they debit (increase) their cash to remove it from your account! This is common if you take out a loan or line of credit, where interest is deducted every month.
A check for $321 was processed correctly by the bank. The company recorded this purchase for advertising expense incorrectly in the amount of $231. 3 Step Process for Correcting Book Side Errors:
The correct amount that should have been recorded was $321. This means the company underreported its expense by $90 ($321 - $231 = $90). To correct the error, we need to increase the advertising expense by the difference, which is $90. This is done by debiting the Advertising Expense account. Since this expense was paid in cash, we'll also need to credit the Cash account by the same amount to show a reduction in cash. The reason we're debiting Advertising Expense and crediting Cash is to reflect the additional cash outflow of $90 that wasn't captured initially.
A check for $231 was processed correctly by the bank. The company recorded this purchase for advertising expense incorrectly in the amount of $321. 3 Step Process for Correcting Book Side Errors:
In contrast to the previous example, here the company overrecorded its advertising expense by $90. To correct this, we need to decrease the advertising expense by the difference of $90. This is done by crediting the Advertising Expense account. Simultaneously, since the company initially reported an excessive cash outflow, we'll need to debit the Cash account by $90 to show an increase in the cash balance. This restores the Cash account to its correct position by reflecting the overrecorded cash outflow that did not actually take place.
🔹 Petty Cash Entries
- STEP 1: Determine the “replenishment” amount. Subtract the remaining balance ($45) from the initial fund amount ($125). The result, $80, is how much you need to replenish. This amount is credited to the cash account, indicating payment into the Petty Cash fund.
- STEP 2: Record the expenses. Debit each expense category with the corresponding amount.
- STEP 3: Ensure total debits (expenses) match the credit (cash). If they don't align, your Petty Cash might have discrepancies (shortages or overages). In this example, they match, so there are no short or over amounts in the fund.
- STEP 1: Determine the “replenishment” amount. Subtract the remaining balance ($45) from the initial fund amount ($125). The result, $80, is how much you need to replenish. This amount is credited to the cash account, indicating payment into the Petty Cash fund.
- STEP 2: Record the expenses. Debit each expense category with the corresponding amount.
- STEP 3: Ensure total debits (expenses) match the credit (cash). If they don't align, your Petty Cash might have discrepancies (shortages or overages). In this case, a $10 discrepancy was found between expected and actual amounts, which is reflected under "Cash Short & Over”
- HINT: If you need a CREDIT to Cash Short & Over in your entry, it always means your Petty Cash fund was OVER.
- Why? If you had $125 originally in the fund. And you spent a total of $80 on expenses — you should’ve had $45 remaining. Since you had $55 remaining instead, this means your fund was over by $10.
- STEP 1: Determine the “replenishment” amount. Subtract the remaining balance ($45) from the initial fund amount ($125). The result, $80, is how much you need to replenish. This amount is credited to the cash account, indicating payment into the Petty Cash fund.
- STEP 2: Record the expenses. Debit each expense category with the corresponding amount.
- STEP 3: Ensure total debits (expenses) match the credit (cash). If they don't align, your Petty Cash might have discrepancies (shortages or overages). In this case, a $10 discrepancy was found between expected and actual amounts, which is reflected under "Cash Short & Over”
- HINT: If you need a DEBIT to Cash Short & Over in your entry, it always means your Petty Cash fund was SHORT.
- Why? If you had $125 originally in the fund. And you spent a total of $80 on expenses — you should’ve had $45 remaining. Since you only had $35 remaining instead, this means your fund was short by $10.
