Problem - Shawnee Co. set up a petty cash fund for payments of small amounts. The following transactions involving the petty cash fund occurred in May (the last month of the company's fiscal year):
May 1 Prepared a company check for $250 to establish the petty cash fund.
15 Prepared a company check both to replenish the fund for the following expenditures made since May 1 and to increase the fund to $450.
a. Paid $78 for janitorial services.
b. Paid $63.68 for miscellaneous expenses.
c. Paid postage expenses of $43.50.
d. Paid $57.15 to The County Gazette (the local newspaper) for an advertisement.
e. Counted $11.15 remaining in the petty cash box.
31 The petty cashier reports that $293.39 cash remains in the fund and decides that the May 15 increase in the fund was too large. A company check is drawn both to replenish the fund for the following expenditures made since May 15 and to reduce the fund to $400.
f. Paid postage expenses of $48.36.
g. Reimbursed the office manager for business mileage, $38.50.
h. Paid $39.75 to deliver merchandise to a customer, terms FOB destination.
Required
1. Prepare journal entries to establish the fund on May 1, to replenish it on May 15 and on May 31, and to reflect any increase or decrease in the fund balance on those dates.
Analysis Component
2. Explain how the company's financial statements are affected if the petty cash fund is not replenished and no entry is made on May 31.