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CMA Foundation · Fundamentals of Financial and Cost Accounting · Cash Book, Bank Book, Petty Cash Book, Bank Reconciliation Statement

Mehta & Sons keeps petty cash on the imprest system with an imprest of Rs 10,000. At the end of a month, the petty cashier's book shows: payments of Rs 7,350 in total, which include Rs 600 paid as a cash advance to an employee which is to be recovered from salary, and Rs 450 for a personal expense of the proprietor. The petty cash in hand is Rs 2,650. What are the amounts to be debited to Employee Advance, Drawings, and Total Expenses (other expenses) respectively?

Debit Employee Advance Rs 600, Drawings Rs 450 and business expenses Rs 6,300. The total payment of Rs 7,350 must be split by nature: the advance is an asset, the proprietor's expense is drawings, and the rest, 7,350 - 600 - 450 = Rs 6,300, is an expense.

  1. ARs 600, Rs 450 and Rs 6,300Correct
  2. BRs 600, Rs 450 and Rs 7,350
  3. CRs 450, Rs 600 and Rs 6,300
  4. DRs 600, Rs 450 and Rs 6,750

Explanation

Cash in hand 2,650 agrees with 10,000 - 7,350. The advance (Rs 600) is a debit to Employee Advance and the proprietor's personal expense (Rs 450) is debited to Drawings. Remaining business expenses = 7,350 - 600 - 450 = Rs 6,300. Total debits = 7,350, matching the reimbursement.

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