 A petty cash account is used for small purchases where going through the check approval process is too time consuming. There are two journal entries involved in the petty cash process. The first is the journal entry to establish the fund. The second is a journal entry to replenish the fund when it's out of money. Let's assume a company wants to establish a petty cash fund for $100 and use this for small purchases. The establishment of the fund is a debit to petty cash and a credit to cash for $100. In reality, the company is writing a check made out to cash for $100 and then cashing it. Now the petty cash fund has $100 for small purchases. Let's assume the following petty cash transactions took place during the month of March. Postage $24, shipping $28, supplies $14 and let's say we had a pizza party for $20. At the end of the month, the petty cash box has $86 of receipts and $14 cash. To replenish the petty cash account, we need money. In this case, we need $86 to add to the 14 that's remaining. This would bring our fund back to $100 cash. In order to do this, we need to make a journal entry and write a check to ourselves. In this example, we debit postage expense, shipping expense, supplies expense and miscellaneous expense for the amounts and we credit cash for $86. Once we cash the $86 check, our fund will be back to $100. Sometimes our petty cash fund is off. When this happens, we use a cash over and short account. When the account has a debit balance, it means it's an expense and it's short. When the account has a credit balance, it means it's a revenue and it means it's over. So let's look at this example again, but this time let's assume we only have $10 of petty cash on hand. We need $90 cash to add to the $10 and that will bring our fund back to $100. In order to do this, we make a journal entry and write a check to ourselves. In this example, we debit postage expense, shipping expense, supplies expense and miscellaneous expense for the amounts and we credit cash for $90. Of course, $86 does not equal $90. We need to debit cash over and short for $4 to make the journal entry balance. Once we cash the $90 check, our fund will be back at $100. Finally let's look at this example again, but this time let's assume we have $20 of a petty cash on hand. We only need $80 in cash to bring the fund back to $100. In order to do this, we need to make a journal entry and write the check to ourselves. In this example, again we debit postage expense, shipping expense, supplies expense and miscellaneous expense for the amounts and we credit cash for $80. Of course, $86 does not equal $80. We need to credit cash over and short for $6 to make the journal entry balance. Once we cash the $80 check, our fund will be back to $100. And that concludes this short video on how to account for petty cash.