Consider the concept of saving face when you read the following scenario, and then answer the question. You are reviewing a prototype refrigeration system developed by a Mexican manufacturing firm. The firm is eager to do business with your company, but you find that the prototype doesn’t meet safety standards. You feel the system needs further development, but the company’s representative, Mr. Lopez, keeps hinting that they’d like to start shipping soon. In this situation, which approach would you take to allow Mr. Lopez to save face?
Explain that safety is a major concern to Western consumers; as a result, you won’t be able to do business with them yet. Explain that the system doesn’t currently meet Western safety standards, but you might be interested in it if they address those concerns.
Explain that, given time, their product could fill your needs and that you are looking forward to more of their safety test results.

Debit: Printing Expense $140

Debit: Postage Expense $54

Credit: Petty Cash $193

Credit: Cash Over and short $1

Explanation:

Expenses increase on the debit. Printing and Postage are both expenses. They are paid out, and are thus debited. Assets increase on the debit side and decrease on the credit side. Petty cash is an asset. However this cash was utilised to pay for the printing and the postage. Thus decreasing the petty cash. Therefore petty cash is credited.

However the fund balance indicated that there was $7 left. But a total of $194 ($140 + $54) was actually spent. This indicates that $6 should actually be left in the petty cash. When an actual balance differs from an unexpected balance it creates a Cash Short and Over account. This account is used to record small differences between actual and unexpected balances. Because these amounts are usually small they will be added to other small amounts and then taken to other expenses under the income statement.