Petty cash

The Difference Between Petty Cash and Cash on Hand

Keep petty cash on hand in your business to cover small unexpected expenses. These expenses can include paying postage, tipping delivery people, purchasing supplies, buying gifts and more. The accounts involved in journalizing petty cash are petty cash, cash and cash short & over.

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. To combat this risk, keep the petty cash in a locked filing cabinet or cash box.

Set Up and Manage a Petty Cash Account

What is petty cash

If you have multiple petty cash funds in multiple divisions, give two people access in each division. One person should have the responsibility for replenishing the petty cash fund. The second person should have responsibility for recording the petty cash transactions into your bookkeeping system. If you use the petty cash account to make change for customers, you will need to do a mini-audit at the end of each day. Start with beginning balance, cash in, cash out compared to transactions, and ending cash.

Of course, overseeing a petty cash fund is still going to add another layer — albeit a small one — to your accounting function. Contact us if you need help establishing a petty cash fund and its conditions. Businesses generally keep small amounts of cash to meet small miscellaneous payments such as entertainment expenses and stationery costs. Such payments are generally handled by a petty cash imprest system whereby an amount of ‘Float’ is fixed.

To set up a petty cash system, the initial amount of money comes from the business checking account. Businesses should keep petty cash in a safe or locked in a cash box. The owner and financial manger should be the only employees with access to the petty cash so it can be accurately tracked and managed. Policies should be established regarding appropriate expenditures that can be paid from petty cash.

The most common way of accounting for petty cash expenditures is to use the imprest system. The initial fund would be created by issuing a cheque for the desired amount. An amount of $100 would typically be sufficient for most small business needs as the expenses to be covered are for small amounts.

What is petty cash float?

A petty cash fund is generally kept so that employees of a business can make small purchases without having to requisition money, use a company credit or debit card, or have a check cut. Then next is that you may have to wait a few days for the bookkeeper to cut the check when other bills are paid.

Be sure and make your journal transactions from the source documents first. With regard to the petty cash fund, the fewer persons with access to it, the better.

The bookkeeping entry for this initial fund would be to debit Petty Cash and credit bank account. This cheque would then be cashed to acquire the actual cash needed for payments. DebitCreditPetty Cash400Cash400To increase the size of the petty What is petty cash cash fund by $400.A company may feel it is time to close the petty cash fund. To illustrate, we will close the $100 original petty cash fund by returning the cash to the checking account with a debit to cash and a credit to petty cash.

Put your petty cash policy in writing and offer some examples of appropriate expenses. For example, petty What is bookkeeping cash may be used to purchase additional postage, paper towels, coffee, or other basic office supplies.

How much petty cash is allowed?

The term ‘petty cash’ derives directly from the word ‘petty’ meaning ‘minor’; ‘small’; ‘of secondary importance’. ‘Petty cash’ was a small amount of cash that was kept aside for trifling purchases, too small to require the effort of the making out and cashing of a cheque.

  • An amount of $100 would typically be sufficient for most small business needs as the expenses to be covered are for small amounts.
  • If you use the petty cash account to make change for customers, you will need to do a mini-audit at the end of each day.

You can also mandate that all petty cash transactions be under a certain dollar amount, like $25. Place the petty cash, from the check you cashed, in a designated petty cash drawer, which can be locked, or a locked petty cash box, or a safe. The drawer, box, or safe in which you place your petty cash should have a designated location within your office from which it should not be moved.

Record petty cash shortages and overages in the cash short & over account. Petty cash or the petty cash fund is a small amount of cash on hand used for paying expenses too small to merit writing a check.

What is petty cash

When a disbursement is made from the fund, a receipt should be placed in the petty cash box. The receipt should set forth the amount and nature of expenditure.

The cash is kept on site, usually in a secured drawer or safe that can only be accessed by someone with authority to handle the cash. The purpose of the fund is to have some cash on hand in case a small purchase needs to be made. Depending on your business size and expenses, your petty cash funds can be anywhere from £40 – £150 (more or less). Petty cash funds are used in cases where a transaction is deemed too small or unreasonably to issue a check for.

This is the maximum amount of cash that can be held at any time. Each time cash level runs low, the petty cash imprest is injected with cash by drawing a cheque. The amount of reimbursement is equal to the expenses paid through petty cash since the time of last reimbursement. Petty cash balance after reimbursement reverts to back to the level of the float.

Only you and the employee designated to oversee the fund should have the keys. If every employee has access to petty cash, bad bookkeeping or nonexistent record keeping usually results. Instead, designate one employee to be responsible for the petty cash fund.

Sometimes, the petty cash custodian makes errors in making change from the fund or doesn’t receive correct amounts back from users. These errors cause the cash in the fund to be more or less than the amount of the fund less the total vouchers. When the fund is replenished, the credit to Cash is for the difference between the established amount and the actual cash in the fund. Any discrepancy should be debited or credited to an account called Cash Over and Short. The Cash Over and Short account can be either an expense (short) or a revenue (over), depending on whether it has a debit or credit balance.

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. Replenish the petty cash fund back to the approved amount as needed.

Complete the Cash Float Form and submit along with a copy of the completed internal cash receipts deposit form to Accounting Services as noted above. Complete an Internal Cash Receipts Deposit Form and submit assets = liabilities + equity along with the cash for deposit to the Financial Services Department, Cashier’s Office. Deposit cash float funds promptly with the Cashier, Financial Services Department, when no longer required.

Don’t: continue replenishing your petty fund without evaluating spending

Require that employees maintain a running petty cash log for every transaction, including receipts. Each entry in the petty cash book should include the date, the amount, and what was purchased with the petty cash. Review your petty cash register before you replenish the petty cash fund. 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 paid out.

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