What Is Petty Cash?
The bottom portion of the petty cash log won’t be completed until the cash in the lockbox needs to be replenished. There’s no need to make journal entries when expenses are reimbursed from cash in the lockbox. Whatever you decide, it’s important that only one person have access to the fund at any time, to avoid unaccounted for withdrawals and/or theft.
If you have an office manager, they’re the most likely choice to manage the petty cash fund. Next, total the amount of all the outstanding slips https://www.kelleysbookkeeping.com/is-inventory-a-current-asset/ (plus attached receipts). This figure should be the same as the withdrawn sum you calculated from the account starting and ending balances.
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. At this time, the total of all of the receipts is calculated to ensure that it matches the disbursed funds from the petty cash drawer. If new funds are needed, the cashier writes a new check to fund the petty cash drawer and takes, in exchange, the receipts from the purchases that depleted the cash. 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. Heather needs a $315 reimbursement to bring the petty cash balance back to $500.
- It’s important to account for petty cash uses in your general ledger because it is an expense recorded in your financial records, like the balance sheet.
- As the petty cash total declines, the receipts should increase and add up to the total amount withdrawn.
- For example, for Jane to get reimbursed for the donuts she purchased for the meeting, she needs to provide a receipt.
- Petty cash is often managed by an employee or a designated petty cash custodian responsible for the cash and ensuring it is used appropriately.
The amount of the petty cash fund is recorded in a current asset account entitled Petty Cash when the petty cash fund is established. Each time you tap into a petty cash fund—that is, take money out—a slip or voucher should be filled out. 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.
Step 1: Establish Petty Cash Policies & Procedures
To record the petty cash transactions for August, you would need to record the expenses as a journal entry. Every business, regardless of size, has various expenses that need to be covered daily. These expenses are often small and frequently occur, such as office supplies, refreshments, or minor repairs.
In this blog post, we will explore petty cash, how it works, and why it is important for businesses. 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. 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. A petty cash fund will undergo periodic reconciliations, with transactions also recorded on the financial statements.
All these details are usually completed through a petty cash voucher/worksheet. These worksheets come in different forms but generally require similar information. The best way to control the account days receivables outstanding is to designate one person in the office to be responsible. Your postage machine just stopped working, and you need to send one of your employees to the post office fast to get some stamps.
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. 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. 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.
Access Exclusive Templates
If the petty cash fund is over, a credit is entered to represent a gain. If the petty cash fund is short, a debit is entered to represent a loss. The over or short account is used to force-balance the fund upon reconciliation. For example, say your small business provides specific services for local business owners.
On the far right of the column, click View Register to arrive at the petty cash register. Mary Girsch-Bock is the expert on accounting software and payroll software for The Ascent. This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee!
What Is an Example of Petty Cash?
The amounts vary between companies but may be anywhere from $50 to $500. This amount is usually spent over a period of a month or two, and is replenished when necessary. If you find yourself going through petty cash rapidly, you can increase the amount of petty cash you keep on hand.
Only the custodian can access the lockbox—and it mustn’t be left opened and unattended. Having a petty cash fund speeds up reimbursements and is an important best practice in cash management. It enables your employees to perform quick errands without using personal money. You have to craft a clear petty cash policy as it sets out the purpose and use of the petty cash fund. Since purchases using the petty cash fund are small, it’s typical to see purchase limits of $50 or less with a total account balance of a few hundred dollars. For example, for Jane to get reimbursed for the donuts she purchased for the meeting, she needs to provide a receipt.