What is petty cash?

Disadvantages of petty cash funds include their vulnerability to theft and misuse, and the need to monitor and balance them periodically. If the management at a later date decides to decrease the balance in the petty cash account, the previous entry would be reversed, with cash being debited and petty cash being credited. Petty cash accounts are managed through a series of journal entries. Entries are needed to establish the fund, increase or decrease the balance of the fund , and adjust for overages and shortages of cash. One way to improve petty cash accounting is to require a receipt for each transaction. For example, you may want to explicitly state the petty cash fund cannot be used for personal purchases and expenses.

Approval for new accounts or increases in the amount must be obtained in advance from Accounting. Petty cash cannot be used to purchase anything requiring special approval, nor should it be used for purchases requiring a purchase order. When the fund is not in use, it must be kept in a secure, locked receptacle. They may also used to be a reimburse employees or to buy items for small amounts. Read this guide to learn about the process automation options that are available to you, and how to use them to improve your finance and accounting operations. While non-cash transactions are increasingly becoming the norm for most transactions, cash is still needed to cover small, “one-off” purchases.

Establishing Internal Controls for Petty Cash Management

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. Petty cash is a small amount of discretionary funds in the form of cash used for expenditures when it is not feasible to make the disbursement by check or electronic funds transfer. The University requires each petty cash fund to have an approved Custodian, who documents expenditures, keeps receipts, and safeguards the funds. Wherever possible, units should use other disbursement methods (i.e., ePayment, GEMS, BuySite, etc.) instead of petty cash.

• Petty cash can also work for frequent but mundane expenses, like milk for the office fridge, stamps, or cleaning supplies.
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• At the end of July, in the petty cash box there should be a receipt for the postage stamp purchase, a receipt for the milk, a receipt for the window cleaner, and the remaining cash.
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• In this case, the cash account, which includes checking accounts, is decreased, while the funds are moved to the petty cash account.

A reconciliation of the petty cash fund/cash drawer should be completed and reviewed by the custodian’s supervisor periodically. Petty cash/cash drawer fund controls and procedures ensure that petty cash/cash drawer funds are properly established, maintained, and that the university’s assets are adequately safeguarded. The petty cash funds which currently exist in various departments are managed by a “petty cash custodian.” If a successor is to be furnished a petty cash fund, a new request is required. Many businesses have a petty cash account for everyday purchases or costs, such as office supplies, parking charges and petrol. Once the cash has been released to the petty cash fund, you will want to secure it, most likely in a lock box, safe, or a locked drawer or file cabinet. Only the custodian and other specifically designated individuals, such as the CFO, may possess the key.

Step 3: Reimburse Receipts and Record Expense in the Petty Cash Log

If the custodian finds that the petty cash fund is too small—this is the case if the fund needs replenishing every few days—then he or she may increase the float. On the other hand, the custodian may find that the fund amount is excessive.

Enter details of money spent to keep track of what you’ve spent and the balance that should be left. Receipts and spending should be reconciled before the funds are replenished. BlackLine https://accounting-services.net/ partners with top global Business Process Outsourcers and equips them with solutions to better serve their clients and achieve market-leading automation, efficiencies, and risk control.

How to Manage Petty Cash Funds

A general ledger is a record-keeping system for a company’s financial data, with debit and credit account records validated by a trial balance. Reconciliation is an accounting process that compares two sets of records to check that figures are correct, and can be used for personal or business reconciliations. All petty cash reimbursements should be submitted via ePayment. Petty cash should be replenished at least annually, but it is recommended to replenish quarterly . Funds are inactive if there has been no activity within a twelve month period and are subject to closure by Accounting Services. To elaborate, a discrepancy happens when the receipts plus the remaining petty cash don’t add up to the set amount for the petty cash fund. On the other hand, whenever cash is added to the petty cash fund, there will be a corresponding debit entry to the petty cash fund account.

Without restrictions, your employees might use it for all kinds of expenditures. It may be a small amount of money, but it’s still cash after all. That’s why cash is considered to be one of the most important assets of a business. Attach a scanned copy of the original police report or loss memo to the check request.

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The object code for this transaction is petty cash or cash drawer. A petty cash management system helps companies ensure that the funds are used appropriately and the transactions are properly documented. Having such a system in place serves as an internal control to protect the business against theft and fraud, and it supports the larger, general ledger reconciliation process. DateAccountNotesDebitCreditXX/XX/XXXXPetty CashAdding to petty cash accountXCashXWhen the petty cash fund gets too low, you must refill it to its set amount. Then, create another journal entry debiting the Petty Cash account and crediting the Cash account. To improve the way you handle Petty cash accounting, require a petty cash receipt for each transaction. And, create a petty cash slip indicating the amount, employee’s name, and date when you give employees petty cash.

Always make sure that the custodian replenishes the fund when it is getting low – making sure, of course, that you know where and how that money has been spent. When it’s time to record expenses, such as the end of the month, go back to the Petty Cash Register and click Add Expense. You need to create an expense entry for each receipt that you’re recording from the lockbox. The petty cash custodian will keep all petty cash items inside a lock box. Only the custodian can access the lock box—and it mustn’t be left opened and unattended.