Petty Cash Accounting and Management

If you’re looking to manage your petty cash fund well, it will take time and effort. With QuickBooks’ cloud accounting software, you’ll not only be able to access your financial information on the go, but you’ll also be able to save time and money and ensure data security. Once you begin creating the petty cash float, your petty cash account book entry will show a debit of the amount deducted to your petty cash fund. At the same time, it will show a credit of that same amount to your bank account.

This should be small enough that employees won’t be tempted to steal it but large enough that you don’t have to replenish it too often. Pick a dollar amount you think will cover small office expenses for a month or so. A petty cash fund between $100 and $500 is sufficient for many small businesses. Most people use petty cash for things like buying office supplies, paying for postage, and so on.

  • 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.
  • Petty cash is a small amount of cash a company keeps on hand to cover small expenses.
  • The journal entry for giving the custodian more cash is a debit to the petty cash fund and a credit to cash.
  • Not only will this help you hold employees accountable, it will also ensure you’re more prepared at tax time.

Use our product selector to find the best accounting software for you. As a practical entrepreneur, you can’t expect everything to go your way. These costs can be urgent, and you may have to handle them immediately. So ditch the pen and paper, switch to a digital solution, and make petty cash management a walk in the park.

What is petty cash and how does it work?

These transactions should be present on your financial statements and recorded in a manner that oversees the replenishment of your funds. While the actual funding should be recorded, the individual purchases do not need to be officially recorded. Petty cash is a small amount of cash a company keeps on hand to cover small expenses. Companies sometimes do this to avoid using a credit card or writing a cheque.

The best way to control the account is to designate one person in the office to be responsible. When a business elects to eliminate its petty cash in favor of other forms of reimbursement, it is no longer listed anywhere on the balance sheet. For example, you don’t want to use petty cash for high priced expenses, so it can help to set a dollar limit, such as $25.00. Anything over that amount would be paid for or reimbursed using other means.

  • 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.
  • After the owner or bookkeeper records all expenses in the books, cash must be taken from the checking account to replenish the petty cash box.
  • For example, petty cash may be used to purchase additional postage, paper towels, coffee, or other basic office supplies.
  • This cheque would then be cashed to acquire the actual cash needed for payments.
  • In comparison to using the company’s account to pay for these and flooding the accounting team with receipts, it’s much faster and more effective.
  • 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.

When filled out correctly, the records like petty cash vouchers make tracking where the money has gone simple enough. It’s because these chosen team members will be trained in filling out petty cash vouchers, asking for receipts and approving petty cash purchase decisions. It’s best practice to always receive a receipt with your petty cash purchase. Petty cash is a readily available sum of money that can be used to pay for nominal expenses, such as lunch or a new set of office pens. It’s a dedicated fund in the business used for day-to-day spending, so it doesn’t require a long process or procurement system.

How to reconcile petty cash

Any time a member of your team takes some petty cash for a purchase, they should record it in the log book. After the money is spent, a petty cash receipt should always be given to accounting in order to aid the petty cash reconciliation process. Typically, companies keep between $30-$300 in their petty cash funds. The use of petty cash is only appropriate for small, erratic expenses that pop up unexpectedly.

What Is an Example of Petty Cash?

The petty cash custodian refills the petty cash drawer or box, which should now contain the original amount of cash that was designated for the fund. The cashier creates a journal entry to record the petty cash receipts. This is a credit to the petty cash account, and probably debits to several different expense accounts, such as the office supplies account rebate adjustment sample clauses (depending upon what was purchased with the cash). The balance in the petty cash account should now be the same as the amount at which it started. 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.

While the amount of money might be small when dealing with petty cash, there should still be a record of every petty cash transaction. If every employee has access to petty cash, bad or nonexistent record keeping usually results. Instead, designate one employee to be responsible for the petty cash fund.

Translations of petty cash

Petty cash is only the physical coins and notes that you have put aside for small expenses. It’s kept differently from cash on hand, as is separated from the rest of the business operations. Alongside always getting a receipt, there are several other petty cash guidelines to protect your business and its assets. Determine the sum of all of the receipts from purchases made in the current accounting period. If not, it looks like you might need to get the magnifying glass out and do some investigating. First things first, balance the books by counting how much money is left in your petty cash tin.

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 (if possible).

While cash isn’t likely to completely disappear from society, we can’t deny that going digital makes petty cash management a whole lot easier. Especially for managing remote team expenses, where employees still need access to petty cash but won’t necessarily have physical access. At any given time, the records should show all purchases that have already been made, how much cash has been taken and what the purchases were for. Most companies tackle the handling of petty cash with a petty cash log book of sorts. Essentially some place to record how much has been removed for purchases. Luckily, there are some software alternatives (we’ll get into that later).

How Much Cash Is Petty Cash?

These expenses could be things like office supplies, a small repair, and so on. In his article for the Institute of Internal Auditors, bank auditor Umair Danka notes that there’s a significant risk of petty cash being spent on non-business activities. To combat this, make sure your employees understand upfront what petty cash can and can’t be spent on. All these details are usually completed through a petty cash voucher/worksheet. These worksheets come in different forms but generally require similar information.