By regularly reconciling petty cash funds in your organization, you can avoid inefficiencies and unauthorized use. For some organizations, monthly reconciliation works for small businesses, whereas for large organizations weekly reconciliation can get the job done for others. Therefore, choose a reconciliation system that works for your firm. Companies often maintain a petty cash fund balance, and this amount will vary based on your company’s needs. Depending on your expenses, it could be anywhere between INR 500 to INR 5000. Therefore, always set a reimbursement limit to avoid cash leakage and to overpay.
Such expenses may include staff lunch, office supplies, postage, coffee, or reimbursing an employee for a miniscule company expense they covered out-of-pocket. The purpose of maintaining petty cash is the efficient and timely management of small, day-to-day operational costs, which can yield a smoother flow of business operations. This individual is responsible for the distribution of cash for minor expenditures, as well as maintaining accurate record-keeping for accounting purposes. When the petty cash fund runs low, the custodian submits a reimbursement request along with receipts which account for the cash spent. This is key to ensuring transparency and control over the company’s use of such funds. The total amount of cash plus the total of receipts should always equal the fixed amount determined as petty cash.
- Usually, the petty cash is used for items such as food for meetings, shipping, to make changes to customers and other miscellaneous expenses when it is not practical to write a check.
- It’s kept differently from cash on hand, as is separated from the rest of the business operations.
- The use of a petty cash fund can circumvent certain internal controls.
It’s crucial because it allows for the efficient handling of small, unplanned expenses without going through the cumbersome process of making a formal cash withdrawal. It’s accounted for through the ‘Petty Cash Account’ and usually kept under lock and key, tracked through a record, the petty cash log, and constantly audited for discrepancies. For instance, it can be used for minor necessities like office supplies or for reimbursing minor travel expenses.
Step 3: Reimburse and record it in petty cash logs
This is a credit to the petty cash account, and probably debits to several different expense accounts, such as the office supplies account (depending upon what was purchased with the cash). The balance in the petty cash account should now be the same as the amount at which it started. Balancing the petty cash account usually occurs when the fund needs to be replenished. The petty cash custodian brings all the slips or vouchers to the business’ bookkeeper, cashier, or accountant. The petty cash receipts are logged into the company’s General Ledger as credits to the petty cash account, and probably debits to several different expense accounts. When the petty fund is replenished, usually by drawing on a company-issued check, it’s recorded as a debit to the petty cash account and a credit to the cash account.
- The most basic internal controls involve removing cash from the business premises.
- When dealing with a cash-only business, and without a petty cash box, you’d have to send someone down to the nearest ATM each time.
- The receipt will be used later as back up for recording the petty cash transaction as an expense in your general ledger.
- The biggest downside of petty cash is that it can be easy for employees to abuse or misuse.
The cash transfer must be recorded by debiting petty cash and crediting the checking account. The petty cashier will be responsible for the petty cash drawer and making the right accounting entries. Additionally, the petty cash custodian is also responsible for distributing the cash and collecting bills and receipts for all expenses caused by the petty cash. Petty cash is usually operated on an “imprest” system where an employee is tasked with maintaining and keeping track of petty cash. Petty cash is defined as a relatively small amount of bills kept to pay for infrequent, minor expenses that must be paid in cash. Usually, the petty cash is used for items such as food for meetings, shipping, to make changes to customers and other miscellaneous expenses when it is not practical to write a check.
Access more informative articles from the QuickBooks Blog that help grow and improve small businesses. QuickBooks also provides a wide product suite from inventory management to expenses tracking, that further enhances your business’ financial wellbeing. While cash isn’t likely to completely disappear from society, we can’t deny that going digital makes petty cash management a whole lot easier.
Companies sometimes do this to avoid using a credit card or writing a check. To set up a petty cash fund, the cashier creates a check in the amount of the funding assigned to a particular petty cash fund (usually a few hundred dollars). Alternatively, the cashier could simply count out the cash for the petty cash fund, if there are enough bills and coins on the premises. The initial petty cash journal entry is a debit to the petty cash account and a credit to the cash account. Any time a member of your team takes some petty cash for a purchase, they should record it in the log book. After the money is spent, a petty cash receipt should always be given to accounting in order to aid the petty cash reconciliation process.
Examples
After procuring the petty cash, the custodian will store the petty cash in a box and lock it. The petty cash custodian will be the only person who can access the box. It is also appropriate for companies to either keep their petty cash in just one office or the main office of each division of the company. The important thing is to monitor your petty cash and keep track of it on a ledger.
How to manage petty cash
Receipts must also be submitted in order to provide proof of purchase. The same value of cash is then added back into the petty cash jar in order to effectively balance the books, or replace that which was taken. And with the latest software, like Connecteam, users will no longer need to manually write down how much petty cash they require. With just a couple of clicks, users can quickly fill in some forms and receive approval in a matter of seconds.
Business owners usually keep a small amount of cash in a safe or lockbox that they use to pay for unexpected items. By having a petty cash cashier and a petty cash custodian, the dual-process helps to keep the funds secure and ensure that only those authorized have access to it. If it is determined that an existing petty cash fund is no longer needed the custodian must close the fund. The remaining cash, a Certification of Closure (Petty Cash Account Certification Form), and all receipts should be taken to the Bursar’s Office for deposit. Contact the Controller’s Office to obtain the appropriate account number before the deposit is made. Supporting documentation will be forwarded to Financial Services by the Bursar for reconciliation.
Mastering petty cash: What it is and how to manage it
Examples of these payments are office supplies, cards, flowers, and so forth. Petty cash is stored in a petty cash drawer or box near where it is most needed. There may be several petty cash locations in a larger business, probably one per building or even one per department. A separate accounting system is used to track petty cash transactions. When a company sets up a fund with petty cash, it typically assigns an employee to oversee the fund. This person handles all purchases made with petty cash and collects receipts.
Initially, you may need to adjust the petty cash fund amount you’ve selected as a cap; over time, you’ll figure out the best level to set it at. In reality, the balance in the petty cash account is higher than the amount of cash actually in the petty cash box, since the cash in the box is continually being the differences in wages payable & wages expense paid out. However, the difference is so minor that it is completely immaterial to the results in the financial statements. Thus, the difference is only reconciled when the petty cash box must be replenished. If there’s a shortage or overage, a journal line entry is recorded to an over/short account.
Why Is It Called Petty Cash?
The petty cash log should include the date, details of the transaction, the cash you put into petty cash, the amount distributed, and a running balance. Once your running balance hits your replenishment amount, you’re ready to write a check to bring the petty cash total back to the original funded amount. The use of a petty cash fund can circumvent certain internal controls. However, the availability of petty cash doesn’t mean that it can be accessed for any purpose by any person. Often, a few individuals are authorized to approve disbursements and can only do so for expenses related to legitimate company activities or operations.
The reconciliation can be done monthly to ensure that the receipts collected tally with the expenses recorded in the book. The petty cash custodian pays out cash as requested in exchange for some form of evidence, such as a receipt or a voucher. The aggregate total of all remaining bills, coins, and evidence of receipt in the petty cash fund should always match the authorized amount of cash for that fund. Once the amount of bills and coins in the fund runs low, the custodian takes the receipts and vouchers to the accounting department and swaps them for a replacement amount of bills and coins. This cash replacement brings the total amount of cash in the fund back up to the originally authorized amount of cash.
On the other hand, petty cash is hard to keep track of, and it’s prone to misuse. Additionally, for smaller companies that don’t have an extensive accounting team and use accounting software instead, managing a petty cash fund can be a time-consuming task. If you’re looking to manage your petty cash fund well, it will take time and effort. With QuickBooks’ cloud accounting software, you’ll not only be able to access your financial information on the go, but you’ll also be able to save time and money and ensure data security. Most enterprises handle their business expenses through petty cash funds. Read this article to discover what petty cash is, its different procedures and how to manage it.