QB 2: Lesson 06 Petty Cash & Journal Entries
http://www.insideskills.com/classes/qb2/09spring/lesson06.php
Muiz Brinkerhoff and Inside Skills Center: offering software skills training to individuals, businesses, non-profits, and in classes at SRJC
QuickBooks Pro: Level 2
BBK 53.2, sections 7637, Spring 2009
presented by Muiz Brinkerhoff
email is the BEST way to contact me - [email protected]
Assignment Details
Lesson 06 - Petty Cash & Journal Entries Revisited
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Assignments due Thur 07 May 2009
REMINDER: read through the ENTIRE page FIRST before beginning to work.
READ the instructions CAREFULLY and COMPLETELY. If you only skim you will make mistakes.
Lesson 6 Recap/Objectives
I. Lesson Overview
A. Learn 2 methods of trackng Petty Cash
1. Method 1
a. Transfer money from checking to petty cash account via ATM withdrawal or
check to Petty Cash
b. Itemize money spent by recording receipts IN the Petty Cash register
c. Replenish money spent with another transfer from Checking to Petty Cash
account
2. Method 2
a. Transfer money to petty cash account via ATM/check
b. Replenish money spent and itemize expenses by writing a check from
CHECKING for the EXACT total of receipts in petty cash box
c. NO further transfers to Petty Cash -- all replenishments happen as split items
on the replenishment check, NOT in Petty Cash register
3. Display the transactions for both methods on filtered Transaction Detail
reports
B. Review Journal Entries
1. Record owner creating a Money Market Savings account with personal money
2. Prepaid Expenses
a. Write check to pay for year's worth of rent/lease
b. Hold money in Prepaid Current Asset Account
c. Use Journal Entry to move 1 month's worth of rent/lease from Prepaid Rent
to Rent expense
3. Record various steps for purchasing an expensive Fixed Asset
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QB 2: Lesson 06 Petty Cash & Journal Entries
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a. Create various accounts
i. fixed asset parent/master account
ii. fixed asset sub-account for asset Cost
iii. fixed asset sub-account for asset Accumulated Depreciation
iv. loan account
b. Write down payment check for portion of total cost charged to asset Cost
account
c. Use Journal Entry to record loan amount for balance of total cost by debiting
Cost account and crediting Loan account
d. Use Journal Entry to record annual depreciation by debiting Depreciation
expense and crediting asset Accumulated Depreciation
e. Write a loan payment check, splitting the amount half and half between loan
interest and paying down the balance in the Loan account
4. Display all the entries on Trial Balance Report
C. Add Petty Cash, Prepaid Expenses, and a Fixed Asset purchase to your Practice
Company
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Assignment Details
Recording & Handling Petty Cash Properly
I.
READ in The Official Guide
A. In the green QB: The Offical Guide
1. Petty Cash - (both 2008 & 2007 versions)
Chapter 13: Managing Bank and Credit Card Accounts - the section titled "Tracking Cash"
or for 2006 - Ch 11: same chapter & section
B.
Muiz' Perspective on Petty Cash
1. The reading selection for Petty Cash shows one method of creating and replenishing a petty cash
fund and recording the money spent on expenses.
2. Summarzing METHOD 1:
In this method, money is withdrawn from an ATM for petty cash, and is recorded in QB by using
the Transfer Funds feature, between Checking and Petty Cash, or a check is written to Cash, and
categorized as Petty Cash, and taken to the bank and exchanged for money.
NOTE: No expenses are recorded at this first step, just the transfer of
money from Checking to Petty Cash.
At some later time, the expenses on which the money has been spent are
recorded directly into the Petty Cash Register, or via the Write Checks
window (pointed to the Petty Cash account rather than the Checking
Account), using the split transactions portion of the check to itemize the
purchases.
When the Petty Cash fund needs to be replenished, money is again taken from the ATM, and is
recorded via Transfer Funds from Checking to Petty Cash. Because of the way ATM's dispense
money, amounts taken out are always in multiples of $20s. Alternatively a replenishment check
could be written from the Checking Account, payable to Cash, or to the individual who will take
the check at the bank to get the cash, and the check again is charged to the Petty Cash account -as before NO expenses are itemized at this point. Money is simply being transferred/added to the
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Petty Cash fund.
With this method, ATM replenishment amounts will be round numbers like $60, $100, $200, etc,
and even though writing a check to replenish the fund would allow for odd, dolllar and cent
amounts, replenishment checks tend to be round numbers as well.
As a second step, completely separate from the replenishiment step, receipts for money spent
from this replenished petty cash fund are recorded, just as they were for the first group of
receipts/expenses, by itemizing them in the Petty Cash register (not in the Checking register),
either as one lump sum -- all of the receipts in a single split transaction, or as individual line
items in the register, one line per receipt.
Each new replenishment adds money to the Petty Cash account, and as the receipts are itemized
and recorded, money is subtracted from the Petty Cash account (transferred to the appropriate
expense accounts). This means that the balance of the Petty Cash account on the Balance Sheet
will fluctuate up and down, and will almost always be odd, dollar and cents amounts, rarely if ever
the same as the previous month.because replenishment money is "put into" the Petty Cash
account, and the itemized expenses are "taken out" of it.
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The balance at any point in time depends on how much is left over from the previous
replenishment, plus the amount of the new replenishment.
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3. METHOD 2 -- Not mentioned in the texbook:
A 2nd, equally valid, method, which I used to use when I was doing bookkeeping for small
businesses, charges ONLY the FIRST ATM withdrawal (or check written to Petty Cash) to the Petty
Cash account, in order to record the creation of a petty cash fund. It alerts anyone looking at the
balance sheet, that a certain portion of company money is no longer in the checking account, but
rather in a petty cash box.
ALL SUBSEQUENT REPLENISHMENT CHECKS are written for the EXACT TOTAL of the receipts in
the Petty Cash box -- not for some abitrary, round, or standard amount (like they are in method
1)-- and the receipts are itemized/split to the various expense accounts right on the
replenishment check, according to the what the money was spent for -- so ALL of the itemization
of expenses happens in the CHECKING ACCOUNT, never in the Petty Cash account.
The replenishment checks are NEVER charged to Petty Cash, and the itemized expenses are
NEVER entered in the Petty Cash register -- both these steps are done in the CHECKING ACCOUNT.
In this method the Petty Cash balance on the Balance Sheet always stays at the same amount -the amount of the first check or ATM withrawal, since none of the replenishment checks, and
none of the itemized expenses are entered into, or taken out of, the Petty Cash account.
All of the replenishment checks are written for the EXACT dollar and cents TOTAL of the receipts.
In a sense the Checking account is "buying" the receipts from the Petty Cash box, paying the
exact, face value, for them, and thus bringing the total in the Petty Cash box back up to the total
that should be there, based on the initial ATM/check transfer.
At any time, the total of the cash still in the box, plus the total of the receipts in the box, should
equal the amount showing on the Balance Sheet as the amount of the Petty Cash fund.
The difference between these two methods is that in the first, the original amount and all
replenishment amounts are charged to the Petty Cash account, AND all expenses are entered
directly into the Petty Cash register afterwards (NEVER into the Checking Account register).
In the second method, 1)--ONLY the original ATM withdrawal/check creating the fund is charged
to Petty Cash. 2)--ALL replenishments are written out of the Checking Account, and the
itemization of expenses for the money spent is charged to the various expense accounts on the
bottom (voucher) portion of the check (or as Split Detail lines in the check register). AND 3)--the
remibursement checks are always for the EXACT total of all the itemized receipts -- never for a
round amount like $100 or $200. In this method there is only 1 transaction in the Petty Cash
account ... the one that created the Petty Cash fund to begin with. All other transactions are
recorded in the Checking Account as Split Detail lines on the replenishment checks.
These 2 methods are each complete in themselves. In the real world one needs to CHOOSE one or
the other. NEVER do both together, or mix steps from one with steps from the other.
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II.
http://www.insideskills.com/classes/qb2/09spring/lesson06.php
STEP BY STEP, PAGE BY PAGE -- Petty Cash
A. There is NO Get Smart chapter for this segment of the lesson
1. Open the B28_job.qbw (or B27_ or B26_) company file.
2. As you've done in previous lessons
a. Open the Company Information screen
b. Add your FULL name to the Company name BEFORE Canalside
c. Add Lesson 6 AFTER Canalside
d. Add your email address
e. Save your changes
3. Create 2 Petty Cash accounts in the Chart of Accounts
type = Bank
name=Petty Cash Method 1
opening balance = 0
and
type = Bank
name=Petty Cash Method 2
opening balance = 0
4. METHOD 1:
a. Record an ATM cash withdrawal from the Checking Account by using the Transfer Funds
feature from the Banking Menu
Date = today
From = Checking
To = Petty Cash Method 1
Transfer amount = $100
Memo = Transfer to Petty Cash on (use today's date)
b. Save and Close
c. Next, pretend you've spent some of the Petty Cash money from the above ATM withdrawal, and
have saved the receipts for it.
d. Open the register for Petty Cash Method 1, and record the receipts for the money that you
spent. The money left over will be kept in a petty cash box in the office
Date = today
Payee = Petty Cash (QuickAdd, type = Other):
Total transaction = $ 70.45, to be Split as follows
Office Supplies, $ 25.45, for printer cartridge
Auto expense, $ 30, for gas in company car
Advertising, $ 15, flyers for weekend sale
e. Record the transaction
f. Next replenish Petty Cash Fund Method 1 by recording another ATM transaction for $80 by
using Transfer Funds.
g. *** CREATE a filtered Transaction Detail by Account Report
(Reports | Accountant & Taxes | Transaction Detail by Account)
i. Set the Date to the date (or date range) corresponding the date(s) you used for the 2 ATM
transfers, and the itemization of expenses transactions, above
ii. Modify the report
. Add "Petty Cash Method 1 ONLY" to the report title, so it is clear that this isn't a full
transaction detail, but just Petty Cash Method 1 account transactions
. Filter the report by Account, and scroll down past the list of account groups to the
indivudual accounts and select Petty Cash Method 1
NOTE: All 3 transactions should show up on this report -- the original
transfer creating the fund, the itemization of the expense receipts, and
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the second transfer replenishing the money.
REMEMBER: Instead of recording all of the receipts in one large, split
transaction, you can record each receipt on a separate line of the Petty
Cash register. Either method will work.
iii. *** PRINT ASSIGNMENT -- HW6-1: the filtered Transaction Detail by Account report
. Write your name and assignment number in the upper right corner
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5. METHOD 2:
a. Open the Write Checks window (ctrl+w), MAKING SURE that the check will be written from the
CHECKING ACCOUNT, and write a check to payee Petty Cash (use QuickAdd if necessary), for
$200. Charge this amount to Petty Cash Method 2, and in the Memo field type 'to establish
Petty Cash fund Method 2'.
b. Pretend that this check has been cashed and that someone has used most of the money in
the fund to buy supplies.
c. Replenish Petty Cash Fund Method 2 by totaling all of the expense receipts and writing
another check to Petty Cash for the EXACT TOTAL of the receipts -- in this case $126.19 -AGAIN MAKING SURE that the check is written from the CHECKING ACCT. Split the amount of
the check in this fashion: Office Supplies, $ 34.26, for printer cartridge Auto Expense, $ 70.18,
for smog check company car Postage & Delivery, $ 21.75, for FedEx delivery of office supplies
d. ***Save & close.
e. *** CREATE another filtered Transaction Detail by Account Report
(Reports | Accountant & Taxes | Transaction Detail by Account)
i. Set the Date to ALL Dates
ii. Modify the report
. Add "Petty Cash Method 2 ONLY" to the report title, so it is clear that this isn't a full
transaction detail, but just Petty Cash Method 2 account transactions
. Filter the report by Account, and scroll down past the list of account groups to the
indivudual accounts and select Petty Cash Method 2
f. *** PRINT ASSIGNMENT -- HW6-2: the filtered Transaction Detail by Account report
i. Write your name and assignment number in the upper right corner
NOTE: that the only transaction in this account is the $200 check creating
the fund -- NO expenses show up here, and no replenishing checks
show up either. All itemization of expenses and future replenishment
checks show up in the Checking Account, not in this Petty Cash Method 2
account.
6. ***CREATE a standard Balance Sheet report for ALL DATES. Notice that Petty Cash Method 1 has
a balance of $109.55, and Petty Cash Method 2 has a balance of $200.
As mentioned above, the balance in Petty Cash Method 1 will fluctuate every month as amounts
are transferred via ATM or check, and as the various expenses are recorded. On the other hand,
Petty Cash Method 2 will always contain the same amount (until or unless the overall amount in
the Petty Cash fund is increased or reduced), since the replenishment checks are written out of
the CHECKING Account and are charged/split to the various EXPENSE accts.
Further, the replenishment amounts for PC Method 2, are ALWAYS for the exact dollar and cent
amount of the receipts on hand, whereas PC Method 1 replenishment amounts will tend to be
round, whole numbers.
7. *** PRINT ASSIGNMENT -- HW6-3: the Standard Balance Sheet
a. Write your name and assignment number in the upper right corner
B. CLOSE the Canalside company file
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Journal Entries Revisited
I.
READ in The Official Guide
A. Journal Entries - (both 2008 & 2007 versions)
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Chapter 19: Journal Entries - the entire chapter
or for 2006 - Ch 14: Using Journal Entries - the entire chapter
II.
STEP BY STEP, PAGE BY PAGE - Journal Entries
A. There is NO Get Smart chapter for this segment of the lesson
1. Open the B28_roll.qbw (or B27_ or B26_) company file.
2. As you've done in previous lessons
a. Open the Company Information screen
b. Add your FULL name to the Company name BEFORE Canalside
c. Add Lesson 6 AFTER Canalside
d. Add your email address
e. Save your changes
B. Create a Journal Entry to record fact that the owner opened a Money Market account for the
business with her personal funds. This is an 'owner investment' or 'owner infusion of cash into the
business'.
1. From the Company Menu at the top of the screen choose Make General Journal Entry
a. Debit Savings - Money Market $5,000
b. Credit Owner's Capital: Investments $5,000
c. Memo = Owner infusion of cash
NOTE: If you were entering this journal entry in a real company, to make the
transaction easier to find later on, it might make sense to have the owner
deposit a check into the checking account first, and then you could transfer
the funds from the checking account to the money market account - but for
this homework transaction enter it via the General Journal.
C. You have leased a storage locker and have to pay the full year's lease/rental amount in advance.
Create the check and a Journal Entry to record using one month's worth of this prepaid rent
1. Create a Prepaid Rent account -- type = current asset
2. Write a check to Fairview Properties for 1200 and charge it to Prepaid Rent
3. Make a Journal Entry to move 1 month's worth of rent ($100) from Prepaid Rent to Rent Expense
a. Debit account Rent Expense $100
b. Credit account Prepaid Rent $100
c. Memo is "tsfr 1 month's rent for storage locker"
d. In real life you could memorize this Journal Entry, so you would have it on hand to use for
future months, or even set it to be entered automatically.
REMEMBER: the original transaction puts all of the prepaid rent into the
Prepaid Rent asset account (which shows on the balance sheet). Then the
monthly journal entry moves one month's worth out of Prepaid Rent into
Rent expense (which shows on the P/L Statement).
To make sure you're doing it correctly: the amount in Prepaid Rent gets
SMALLER and the amount in Rent Expense gets LARGER with each journal
entry -- if Prepaid Rent is getting LARGER and Rent Expense is a NEGATIVE
amount, you've entered your Debits and Credits backwards.
D. You have purchased a state of the art air conditioning/heating system for $150,000.00. You've put
$15,000 down, and are financing the balance of the purchase price via a long term loan. Track the
cost of the system and its accumulated depreciation in 2 separate Fixed Asset subaccounts, and the
Loan in a Long Term Liability account.
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1. Create the Fixed Asset parent account
type=Fixed Asset
name = Climate Control System
Opening Balance = 0
2. Create 2 subaccounts of Climate Control System
Type=Fixed Asset
Name=Climate Control Cost
Sub account of Climate Control System
Opening Balance = 0
AND
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Type=Fixed Asset
Name=Accum Deprec Climate Control
Sub account of Climate Control System
Opening Balance = 0
3. Create the loan account
type= Long Term Liability
name = Climate Control System Loan
Opening Balance = 0
4. Write a check to Climate Wizards (QuickAdd as Vendor) for the down payment on the system
Amount = $15,000.00
Charge to Climate Control COST
5. Book the loan (ie enter it) for the balance of the cost of the climate system (150,000 - 15,000)
Open the General Journal window
Debit Climate Control COST $135, 000
Credit Climate Control System LOAN $135,000
Memo To record loan for balance of Climate Control System
6. Record the annual depreciation amount for the Climate Control System (assume 10 years useful
life ... $150K/10 = $15K) via a Journal Entry
Debit account = Depreciation Expense $15,000
Credit account = Accum Deprec Climate System $15,000
Memo = annual depreciation on Climate Syste
7. Write a check to Eastcoast Bank for a monthly payment on the Climate System loan
Amount = $1500
Split the payment 50/50 between Loan Interest and Loan Principal ...
$750 to Interest: Loan Interest expense and
$750 to the Climate System LOAN
8. ***CREATE a Trial Balance report
(Report Center | Accountant & Taxes section)
a. Set the Date to today's date
b. *** PRINT ASSIGNMENT -- HW6-4 the Trial Balance
i. Write your name and assignment number in the upper right corner
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More Work in your Practice Company
1. Incorporate Petty Cash and Journal Entries into your practice company
a. Set up a Petty Cash account in your practice company,
i. use either method 1 or method 2,
ii. total amount of the petty cash fund is your choice.
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iii. Record the use of money from petty cash to purchase at least 3 things ... office supplies,
gas for the company vehicle, equipment rental, advertising, shipping for delivery of some
item, etc.
b. Use a journal entry to record the transfer of ownership of a personal Money Market savings
account to the business (owner infusion of cash into the business) -- debit the savings account
and credit Owner's Investment
c. Record the purchase of some sort of expensive Fixed Asset for your business ...
i. a vehicle, a high speed color copier, some other piece of equipment, or 'furniture and
fixtures'
ii. pay for the item(s) with a down payment check and finance the balance with a loan.
iii. Make the first loan payment, splitting the payment half/half between loan interest and loan
principle.
d. Write a check to some vendor for a year's lease on a storage unit, or for an annual
insurance policy, and
i. charge the amount to a Prepaid Rent or Prepaid Insurance account.
ii. Use a Journal Entry to record 1 month's worth of rent or insurance expense.
2. ***CREATE a Trial Balance report
(Report Center | Accountant & Taxes section)
a. Set the Date to today's date
b. *** PRINT ASSIGNMENT -- HW6-5 the Trial Balance
i. Write your name and assignment number in the upper right corner
BACKUP your Practice Company file
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Congratulations. You've finished Lesson 06
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