Accounting Fundamentals Certification (AFC) Practice Test 2026 – The Comprehensive All-in-One Guide to Exam Success!

When establishing a petty cash fund, the cash account is generally credited because this transaction involves moving funds from the main cash reserves into a separate petty cash account that is designed for minor expenses.

In this process, the company is essentially reducing its cash account balance to reflect that cash is being set aside specifically for small, routine expenditures that will be paid out from the petty cash fund. This ensures that the main cash account accurately represents the cash available for other purposes, while the petty cash fund will be managed separately for specific small transactions.

The petty cash account itself is actually debited in this transaction to reflect the increase in the fund, while the cash account is credited, indicating a decrease in the balance of cash on hand. This systematic approach keeps financial records organized and helps maintain accurate tracking of cash flows.