Petty Cash Learn More About Petty Cash Funds and Transactions

The petty cash custodian refills the petty cash drawer or box, which should now contain the original amount of cash that was designated for the fund. The cashier creates a journal entry to record the petty cash receipts. 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. When a petty cash fund is in use, petty cash transactions are still recorded on financial statements. The journal entry for giving the custodian more cash is a debit to the petty cash fund and a credit to cash.

These expenses could be things like office supplies, a small repair, and so on. In his article for the Institute of Internal Auditors, bank auditor Umair Danka notes that there’s a significant risk of petty cash being spent on non-business activities. To combat this, make sure your employees understand upfront what petty cash can and can’t be spent on. All these details are usually completed through a petty cash voucher/worksheet. These worksheets come in different forms but generally require similar information.

These transactions should be present on your financial statements and recorded in a manner that oversees the replenishment of your funds. While the actual funding should be recorded, the individual purchases do not need to be officially recorded. Petty cash is a small amount of cash a company keeps on hand to cover small expenses. Companies sometimes do this to avoid using a credit card or writing a cheque.

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 intangible asset definition the petty cash reconciliation process. Typically, companies keep between $30-$300 in their petty cash funds. The use of petty cash is only appropriate for small, erratic expenses that pop up unexpectedly.

• Even though the cash economy is getting smaller, there is still often a need to reimburse employees or to quickly pay a delivery driver.
• Before joining FSB, Eric has worked as a freelance content writer with various digital marketing agencies in Australia, the United States, and the Philippines.
• Software not only makes petty cash easier to track – it’s also more secure.
• Require that employees maintain a running petty cash log for every transaction, including receipts.
• Furthermore, keep a Microsoft Excel doc or other spreadsheets that tracks who spent what, when it was spent, and the total amount of spending for both the month and year to date.

This should be small enough that employees won’t be tempted to steal it but large enough that you don’t have to replenish it too often. Pick a dollar amount you think will cover small office expenses for a month or so. A petty cash fund between $100 and $500 is sufficient for many small businesses. Most people use petty cash for things like buying office supplies, paying for postage, and so on.

Petty cash vs cash on hand: what’s the difference?

While the amount of money might be small when dealing with petty cash, there should still be a record of every petty cash transaction. If every employee has access to petty cash, bad or nonexistent record keeping usually results. Instead, designate one employee to be responsible for the petty cash fund.

The best way to control the account is to designate one person in the office to be responsible. When a business elects to eliminate its petty cash in favor of other forms of reimbursement, it is no longer listed anywhere on the balance sheet. For example, you don’t want to use petty cash for high priced expenses, so it can help to set a dollar limit, such as $25.00. Anything over that amount would be paid for or reimbursed using other means.

If you’re ready to set up a petty cash fund for your office but aren’t sure where to begin, follow the simple steps below to have your petty cash fund operational in no time. To begin, have a secure place to store your petty cash funds, such as a lockbox or locked drawer. Most small businesses keep between $100 and $200 in petty cash to pay for these and other unexpected expenses. If you’re ready to set up a petty cash account for your business, we’ll guide you through the process. A petty cash fund is a small amount of company cash, often kept on hand (e.g., in a locked drawer or box), to pay for minor or incidental expenses, such as office supplies or employee reimbursements. Petty cash is a current asset listed as a debit on the balance sheet.

Financial Policy Office

Overall, there’s a total of $500 in the lockbox after replenishment. Many bookkeepers prefer to combine the second and third journal entries above if the cash is replenished at the same time as expenses are recorded, which is generally the best practice. By combining the journal entries, Petty Cash isn’t adjusted and the expenses are recorded coming directly from the checking account. Petty cash is a highly liquid asset, which means that it’s easily stolen. Even if you trust your employees, cash left out on a table or desk could be stolen by an office visitor or a customer.

Disadvantages of petty cash

It’s easy to see why many choose to dip their fingers into the petty cash box and keep things simple instead. An increasing dependence on credit, debit cards and mobile payments in the UK means that the forward-thinking company is quickly catching up to our near cashless society. Petty cash funds provide a convenient way to pay for small expenses, but keeping cash in any office entails risk of misuse or theft. If you need help getting a petty cash log started, look up some free petty cash log templates to do some of the work for you.

How To Reconcile Petty Cash

When filled out correctly, the records like petty cash vouchers make tracking where the money has gone simple enough. It’s because these chosen team members will be trained in filling out petty cash vouchers, asking for receipts and approving petty cash purchase decisions. It’s best practice to always receive a receipt with your petty cash purchase. Petty cash is a readily available sum of money that can be used to pay for nominal expenses, such as lunch or a new set of office pens. It’s a dedicated fund in the business used for day-to-day spending, so it doesn’t require a long process or procurement system.

The amount of petty cash a company has on hand depends on the size and nature of the business. While a small business might need just $50, a large company department might start with $150. Obviously, companies don’t want lots of cash just sitting around in the office.

Definition of Petty Cash

This acts as a receipt, logging the amount of the withdrawal, the date, the purpose, and other details. Increasingly, these slips are electronic ones, entered in a digital spreadsheet or ledger. But it can be helpful to keep paper slips too, along with receipts from the purchases or payments (if possible).