Petty Cash Book is an accounting book used for recording cash expenses which are small and of little value, for example, stamps, postage and handling, stationery, carriage, daily wages, etc. Petty cash is a useful tool for all businesses to have – large or small. But it’s vital that you maintain diligent accounts so your balance sheet is accurate. Access more informative articles from the QuickBooks’ Blog that help grow and improve small businesses. QuickBooks also provides a wide array of outstanding software that further enhances your business’ financial wellbeing.
Oversight of petty cash is important because of the potential for abuse. If you have an office manager, they’re the most likely choice to manage the petty cash fund. 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.
Petty cash accounting
As part of a company’s cash, a petty cash fund is drawn on its checking account, cashing that check and giving the currency and coins to the custodian. If money from the fund is used for expenses, the custodian will use petty cash receipts or vouchers to replace that cash. When the fund is replenished, the expenses will be recorded in the general ledger. The petty cash fund is reconciled periodically to verify that the balance of the fund is correct. Typically, as the petty cash balance falls to a preset level, the custodian applies for additional cash from the cashier.
- If an employee has to buy something on their own for business purposes, they will usually be reimbursed in compensation out of the company’s petty cash fund.
- If money from the fund is used for expenses, the custodian will use petty cash receipts or vouchers to replace that cash.
- If the remaining balance is less than what it should be, there is a shortage.
- Some examples may include snacks, transport fares, office supplies, etc.
One person – the petty cash “custodian” – is responsible for tracking funds disbursed and replenishing the fund when needed. Some companies require receipts for disbursement and others use petty cash vouchers from an office supply store to itemize how the money was spent and who spent it. The level of sophistication for tracking petty cash spending is usually in line with other company procedures. The journal entry to fund petty cash would debit the account and credit to cash bank account. At the end of each period, the fund must be evaluated to see if there are enough funds for the future periods. If not, additional funds must be transferred from the normal business checking account.
What Is Petty Cash?
When the cash balance in the petty cash fund drops to a sufficiently minimal level, the petty cash custodian applies for more cash from the cashier. This takes the form of a summarization of all the receipts that the custodian has accumulated. The cashier creates a new check in the amount of the receipts, and swaps the check for the receipts. The petty cash journal entry is a debit to the petty cash account and a credit to the cash account. The most common way of accounting for petty cash expenditures is to use the imprest system.[2] The initial fund would be created by issuing a cheque for the desired amount.
Internal Controls
This ensures that one individual can be held responsible for all the cash in the fund. Petty cash is useful for businesses to keep on hand whether they are just one-person proprietorships, such as a financial advisor, or all the way up to a small business with multiple divisions. On her way to the office, Jane receives a phone call from her boss asking her to stop and pick up some donuts for an unexpected meeting later that morning.
How Do You Set Up A Petty Cash Fund – Step by Step
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. 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. However, the difference is so minor that it is completely immaterial to the results in the financial statements.
What is Petty Cash?
He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. The most common method is to use a petty cash tin that has a lock and key. This is especially useful for businesses dealing with numerous small transactions. Petty cash allows for the quick and efficient handling of small, routine expenses without the need for complex approval processes. The definition of ‘petty’ is that it is of low importance, and therefore employees will often reflect this in how they treat the fund. Numerous problems can arise when dealing with petty cash if a robust system isn’t in place.
What Is Required To Use Petty Cash
The custodian is tasked to overlook and safeguard the account by issuing cash, approving reimbursements, and recording the debits and credits to the account. Next, total the amount of all the outstanding slips (plus attached receipts). This figure should be the same as the withdrawn sum you calculated from the account starting and ending does depreciation affect net income balances. And the amount of cash you have in your storage box or drawer should be the same as the current balance of the account. Separate columns are used for each expense in ‘Analytical petty cash book’. From the following information please show an analytical petty cash book (using the Imprest system) for the 1st week of Feb YYYY.