Set up a Petty Cash Float

The business wants to establish a petty cash float of 300 using money withdrawn from its the bank account.

How to Record the Set up a Petty Cash Float

The accounting records will show the following bookkeeping entries when the business withdraws cash to set up a petty cash float:

Petty Cash Float Journal Entry
Account Debit Credit
Petty Cash 300
Cash 300
Total 300 300

Petty Cash Float Bookkeeping Entries Explained

Debit – What came into the business
Cash came into the business in the form of petty cash.

Credit – What went out of the business
Cash went out of the business checking account when it was withdrawn

The Accounting Equation

The accounting equation, Assets = Liabilities + Capital means that the total assets of the business are always equal to the total liabilities plus the equity of the business. This is true at any time and applies to each transaction. For this transaction the Accounting equation is shown in the following table.

Petty Cash Float Accounting Equation
Assets = Liabilities + Capital
Petty Cash – Cash = None + None
300 – 300 = 0 + 0

In this case one asset (petty cash) will have increased and another asset (cash) will have decreased by same amount. The entry simply records the movement of money in the business from cash to petty cash.

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