How is petty cash replenished and accounted for in the records?

• A. Replenish to bring petty cash back to fixed amount; debit the various expense accounts and credit cash or cash equivalents for the total amount.
• B. Replenish by issuing more petty cash without adjusting expenses.
• C. Replenish petty cash by crediting expense accounts.
• D. Replenish petty cash by debiting cash.

Answer: (A)

Petty cash is a small, fixed-amount cash fund. When cash is taken from it, you’ve already recorded the related expenses by debiting the appropriate expense accounts and crediting the petty cash account to reflect the fund’s decrease. Replenishing the fund means restoring it back to its original fixed level.

The correct approach is to recognize the actual expenditures (debit the various expense accounts for what was spent) and to reduce the main cash account by the total amount spent (credit cash or cash equivalents) so that the petty cash fund can be brought back up to its fixed amount. In practice, you’re showing the costs incurred and moving funds from the main cash account back into the petty cash fund to restore its balance.

Why the other options don’t fit: replenishing by simply issuing more petty cash ignores the recorded expenses; replenishing by crediting expense accounts would misstate expenses; replenishing by debiting cash would increase cash rather than restore the petty cash balance.