Making a single person responsible for petty cash cuts down on confusion and minimizes the risk of theft. The petty cashier of John and James Company paid cash for the following expenditures during March 2018. Crystalynn Shelton is an Adjunct Instructor at UCLA Extension where—for eight years—she has taught hundreds of small business owners how to set up and manage their books. Crystalynn is also a CPA, and Intuit ProAdvisor where Crystalynn specializes in QuickBooks consulting and training. Prior to her time at Fit Small Business, Crystalynn was a Senior Learning Specialist at Intuit for three years and ran her own small QuickBooks consulting business. Expense Category – Select the appropriate expense category from the dropdown (e.g., office supplies, postage).

Petty cash funds are not to be used for cashing checks or funding short-term borrowings (I.O.U.’s). Complete theTransfer of Petty Cash/Cash in Drawer Fund Accountability Form.

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. Only you and the employee designated to oversee the fund should have the keys. Ideally, people in this role will be comfortable handling business expenses and have experience with financial statements. Those with prior financial accounting experience are especially great with this, but anyone that’s handled expense accounts should be fine.

Step 1: Set Up A Petty Cash Log

This shows you how much cash you have withdrawn from the fund. Compare this amount to the total amount listed on your receipts to determine if your accounts are equal. Like any other type of transaction, you must record gross vs net transactions in your small business accounting books.

Approval for new accounts or increases in the amount must be obtained in advance from Accounting. Once approval has been received from Accounting, request a new petty cash/cash drawer account.

Someone must check the account periodically so the balance doesn’t get too low. When the petty cash drawer gets below a pre-set amount that you determine, add to the drawer by writing a check to «Petty Cash» and cashing that check. If you’re running a proper log as mentioned above, you’ll also be able to easily gather up your petty cash vouchers and cross-reference them with your books to ensure things are accurate. This will set you up for success, not a petty cash accounting nightmare. Usually one individual, called the petty cash custodian or cashier, is responsible for the control of the petty cash fund and documenting the disbursements made from the fund. By assigning the responsibility for the fund to one individual, the company has internal control over the cash in the fund.

Petty Cash Procedures

All entries to reimburse the petty cash are charged to an operating account,not the original petty cash account. Petty cash may be used only for payments to Human Research subjects and related expenditures only from funds set up specifically for that purpose and for which confidentiality is essential. Petty cash may only be used for payments to Human Research Subjects and related expenditures only from funds set up specifically for that purpose and for which confidentiality is essential. A current Institutional Review Board letter is required to establish petty cash funds.

Petty cash is the money a business keeps on hand to pay for miscellaneous purchases. Most purchases made with petty cash are unexpected expenses that can pop up, such as morning coffee for a meeting or dinner for an employee working overtime. Commercial transactions are increasingly cashless—even at small retailers and restaurants, where purchases traditionally have relied heavily on coins. Petty cash has become an outmoded concept, some critics say. 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. Petty cash is a nominal amount of money readily accessible for paying expenses too small to merit writing a check or using a credit card. Within KFS, a petty cash account is represented by the balance of an object code within a KFS account.

To track the cash, create a petty cash account in the asset section of your chart of accounts. When you’re ready to replenish the fund, record the expenses in your accounting software based on the petty cash expense log. Then, record the replenishment by debiting the petty cash account and crediting the bank account you used to refill the 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. 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. For petty cash reconciliation, subtract the amount in your petty cash fund from the amount stated in your books.

What Are Some Typical Petty Cash Expenses?

But if you’re going to establish a cash flow fund at your small business, be prepared to create a petty cash accounting system. Petty cash is a small amount of money that a company typically keeps available to cover the minor expenses of their day-to-day operations.

• Crystalynn is a CPA and Intuit ProAdvisor with an extensive background in QuickBooks consulting and training.
• If you would like this charge removed, please let our staff know.
• Reconciling petty cash entails making sure you have a receipt for every petty cash purchase in your petty cash log and creating a journal entry to record it on the books.
• Used to replenish the cash in the petty cash account.This account is not changed unless there is a change in the value of the petty cash/cash drawer.

Petty cash refers specifically to money—literally, coins and bills—that a company keeps on hand for small outlays, usually because using cash is easier than using a check or credit card. The Internal Revenue Service recommends filing out petty cash slips and attaching them to receipts to record and document petty cash expenses. It the above example, the cash held at the end of the accounting period is 35, and therefore the amount of 65 is needed to restore the fund back to its original fixed amount of 100. I am writing this letter to request approval of petty cash amounting _______ .

Accountingtools

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 . The use of a petty cash fund can circumvent certain internal controls. However, the availability of petty cash doesn’t mean that it can be accessed for any purpose by any person. Many companies employ strict internal controls to manage the fund.

Petty cash is a common form of imprest system (I.E. financial accounting system), and is a pre-designated amount that’s built into the budget and replenished after a set period of time or when it runs out. At all times, the employee responsible for petty cash is accountable for having cash and petty cash vouchers equal to the total amount of the fund. One of the conveniences of the petty cash fund is that payments from the fund require no journal entries at the time of payment.

A petty cash voucher is a form or document that reflects the amount and the reason for petty cash disbursement. The custodian is required to prepare a voucher for each disbursement and attach any source documents for expenses to the voucher, such as invoices and receipts. The custodian must also ensure at all times that the cash available and the petty cash vouchers are equal to the fund’s original total amount. Once the check has been cashed, the petty cash custodian puts the money into a safe or a small box that can be locked. The custodian doesn’t include the petty cash in a journal entry unless there is an adjustment in the original amount.

Differences are resolved and a new cash log is created with a new balance for the new reporting period. The custodian will likely be entering transactions into whatever accounting software he/she is using, and may require an employee to complete a voucher and submit receipts. The petty cash log provides a physical paper-based record of the cash-in and cash-out. To customize a petty cash form for your business, download the free template below. For petty cash accounting, you must create a log detailing your transactions. And, you must record a petty cash journal entry when you put money into the petty cash fund and when money leaves the fund.

The petty cash log should include the date, details of the transaction, the cash you put into petty cash, the amount distributed, and a running balance. Once your running balance hits your replenishment amount, you’re ready to write a check to bring the petty cash total back to the original funded amount. 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.

The Imprest Petty Cash Fund Is Replenished

For example, for Jane to get reimbursed for the donuts she purchased for the meeting, she needs to provide a receipt. The receipt will be used later as back up for recording the petty cash transaction as an expense in your general ledger. This figure should be the same as the withdrawn sum you calculated from the account starting and ending balances.

Cash is hard to secure and impossible to track; it’s very easy for bills to disappear without a trace—even if you’ve established a careful system of receipts or vouchers. While it shouldn’t be a habitual practice, petty cash in a pinch can be used to make change for customers, if the till’s running short. Petty cash fund custodians are appointed to oversee the fund. The custodial duties generally include enforcing petty cash rules and regulations, requesting replenishments, and dispensing funds. Petty cash replenishment less than $300 is processed through the Cashier’s Office window.

Bench assumes no liability for actions taken in reliance upon the information contained herein. It might be tempting to wing it for as long as you can, but setting up a proper petty cash system early is crucial. A 4% service charge will be added to each guest check to ensure competitive industry compensation, as well as health and medical benefits, for all of our valued full time team members. In support of this initiative, the entirety of the charge is retained by the company. If you would like this charge removed, please let our staff know. The imprest system reduces the chances of misuse of cash because the float can be immediately reduced if it is found to be more than adequate for the agreed period. Transfer Amount – Enter the amount you want to replenish the fund with.

The most important part of a petty cash system is the documentation of each transaction. Documenting transactions is the way a business documents business expenses for tax purposes. By keeping track of all petty cash transactions – no matter how petty- you have records to back up deductions for those small business expenses.

A petty cash fund typically undergoes periodic reconciliations , and transactions will also be recorded on the financial statements. Because the cash economy is getting smaller, and people are using debit and credit cards more for small purchases, the use of a petty cash system (with a «cash drawer») has diminished.

But it’s still essential for any business to make sure you account for all small purchases so that you can deduct them as business expenses. Sometimes, the petty cash custodian makes errors in making change from the fund or doesn’t receive correct amounts back from users.

Once the vouchers have been verified and approved, a check is created for $90 that restores the cash in the petty cash fund to its $100 balance. As you start out, keep track of how much is in the petty cash box or drawer at the beginning of each day. As you make each payment, you will need petty cash slips or a transaction list. For each transaction, record the date, the amount, and what it was for. Keep as much cash as you need in your cash drawer, but not too much, so it isn’t a temptation for employees or robbers. To determine a maximum amount for petty cash, keep records on expenditures over a period of time, using an average amount for each week, for example. DebitCreditPetty Cash400Cash400To increase the size of the petty cash fund by $400.A company may feel it is time to close the petty cash fund.

Author: Laine Proctor