Chapter 6, Problem 3PA

To determine

Journalize the difference between cash count and cash reported on cash register.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

• Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
• Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Journalize the difference between cash count and cash reported on cash register.

Transaction on July 28:

Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
July	28	Cash			893.50
		Cash Short and Over			1.70
			Income from Services			895.20
		(Record cash shortage in the revenue earned)

Table (1)

Description:

• Cash is asset account. Since the cash collected from sales revenue is recorded, the asset value increased. So, debit the cash account with $893.50.
• Cash Short and Over is an income statement (expense or revenue) account. The increase (overage) is credited and recorded as Revenue, and decrease (shortage) is debited and recorded as Expense. Hence, debit Cash Short and Over account with $1.70 indicating an expense.
• Income from Services is a revenue account. Revenues increase the stockholders’ equity value. So, credit Income from Services account with $895.20, indicating an increase in stockholders’ equity.

Working Note:

Compute the cash short and over amount.

$\begin{array}{c}\text{Cash }\left(\text{short}\right)\text{ and over = }\left\{\begin{array}{l}\left(\begin{array}{l}\text{Cash count–}\\ \text{Amount in change fund}\end{array}\right)–\\ \text{Cash recorded on tape}\end{array}\right\}\\ \text{=}\left(\text{\$993}\text{.50–\$100}\text{.00}\right)–\text{\$895}\text{.20}\\ =\$893.50–\$895.20\\ \text{=\$}\left(\text{1}\text{.70}\right)\end{array}$

Transaction on July 29:

Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
July	29	Cash			975.80
		Cash Short and Over			1.60
			Income from Services			977.40
		(Record cash shortage in the revenue earned)

Table (2)

Description:

• Cash is asset account. Since the cash collected from sales revenue is recorded, the asset value increased. So, debit the cash account with $975.80.
• Cash Short and Over is an income statement (expense or revenue) account. The increase (overage) is credited and recorded as Revenue, and decrease (shortage) is debited and recorded as Expense. Hence, debit Cash Short and Over account with $1.60 indicating an expense.
• Income from Services is a revenue account. Revenues increase the stockholders’ equity value. So, credit Income from Services account with $977.40, indicating an increase in stockholders’ equity.

Working Note:

Compute the cash short and over amount.

$\begin{array}{c}\text{Cash }\left(\text{short}\right)\text{ and over = }\left\{\begin{array}{l}\left(\begin{array}{l}\text{Cash count–}\\ \text{Amount in change fund}\end{array}\right)–\\ \text{Cash recorded on tape}\end{array}\right\}\\ \text{=}\left(\text{\$1,075}\text{.80–\$100}\text{.00}\right)–\text{\$977}\text{.40}\\ =\$975.80–\$977.40\\ \text{=\$}\left(\text{1}\text{.60}\right)\end{array}$

Transaction on July 30:

Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
July	30	Cash			886.60
			Income from Services			884.50
			Cash Short and Over			2.10
		(Record cash overage in the revenue earned)

Table (1)

Description:

• Cash is asset account. Since the cash collected from sales revenue is recorded, the asset value increased. So, debit the cash account with $886.60.
• Cash Short and Over is an income statement (expense or revenue) account. The increase (overage) is credited and recorded as Revenue, and decrease (shortage) is debited and recorded as Expense. Hence, credit Cash Short and Over account with $2.10 indicating a revenue.
• Income from Services is a revenue account. Revenues increase the stockholders’ equity value. So, credit Income from Services account with $884.50, indicating an increase in stockholders’ equity.

Working Note:

Compute the cash short and over amount.

$\begin{array}{c}\text{Cash }\left(\text{short}\right)\text{ and over = }\left\{\begin{array}{l}\left(\begin{array}{l}\text{Cash count–}\\ \text{Amount in change fund}\end{array}\right)–\\ \text{Cash recorded on tape}\end{array}\right\}\\ \text{=}\left(\text{\$986}\text{.60–\$100}\text{.00}\right)–\text{\$884}\text{.50}\\ =\$886.60–\$884.50\\ \text{=\$2}\text{.10}\end{array}$

Transaction on July 31:

Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
July	31	Cash			1,024.40
		Cash Short and Over			2.85
			Income from Services			1,027.25
		(Record cash shortage in the revenue earned)

Table (1)

Description:

• Cash is asset account. Since the cash collected from sales revenue is recorded, the asset value increased. So, debit the cash account with $1,024.40.
• Cash Short and Over is an income statement (expense or revenue) account. The increase (overage) is credited and recorded as Revenue, and decrease (shortage) is debited and recorded as Expense. Hence, debit Cash Short and Over account with $2.85 indicating an expense.
• Income from Services is a revenue account. Revenues increase the stockholders’ equity value. So, credit Income from Services account with $1,027.25, indicating an increase in stockholders’ equity.

Working Note:

Compute the cash short and over amount.

$\begin{array}{c}\text{Cash }\left(\text{short}\right)\text{ and over = }\left\{\begin{array}{l}\left(\begin{array}{l}\text{Cash count–}\\ \text{Amount in change fund}\end{array}\right)–\\ \text{Cash recorded on tape}\end{array}\right\}\\ \text{=}\left(\text{\$1,124}\text{.40–\$100}\text{.00}\right)–\text{\$1,027}\text{.25}\\ =\$1,024.40–\$1,027.25\\ \text{=\$}\left(2.85\right)\end{array}$