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If you plan to use petty cash for small business purchases like postage and office supplies, it may be handy to use forms and vouchers to keep track of your transactions. Keeping careful records of cash expenditures will be a huge help when it comes time to reconcile your petty cash account. A business uses a petty cash account for tracking physical cash used to make small payments. The cash can be kept in a small safe or locked file cabinet, perhaps in an manila envelope. Petty cash is often used for meeting refreshments, reimbursing an employee for office supplies she purchased, or other miscellaneous expenses that require payments in cash or coin. A petty cash log can be taped to the envelope or stored with the cash so that whenever you remove or add cash you can use the form to record the date, payee, purpose, and amount.
If everything adds up and you’re simply burning through petty cash regularly, evaluate your spending and look for areas to cut. For example, if you’re buying tons of office supplies week after week, maybe you should look into bulk ordering the supplies to cut down on spending.
The form must be signed by the current custodian as well as the new custodian and the immediate supervisor and department head. New custodian should read the policies and procedures petty cash prior to accepting the responsibilities of custodianship for a fund. Submit the form along with supporting document as an attachment to the Cash & Controls Team at .
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post.
What Is Petty Cash And What Is It Used For?
The first thing you need to do is document your petty cash procedures and communicate them to all employees. University Accounts Payable cuts checks to designated Custodians upon receipt of a Payment Request with an attached Petty Cash Action Form signed by the Financial Dean or equivalent . The check request is cut in the standard AP check process and is delivered by mail services to the Custodian’s departmental address. Therefore, it is appropriate to keep only enough petty cash available for emergency and convenience needs. Petty cash works on the imprest system, in which there is an initial amount of money put into an account, which is drawn upon for a specific purpose .
- The important thing is to monitor your petty cash and keep track of it on a ledger.
- It’s best to put your petty cash policy in writing and provide some examples of appropriate expenses.
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- This is the first entry in your petty cash account, represented by the following journal entry that shows petty cash leaving your bank account.
- The initial petty cash journal entry is a debit to the petty cash account and a credit to the cash account.
Read on to learn about establishing a petty cash fund, handling petty cash accounting, reconciling your petty cash account, and claiming a tax deduction. Petty cash is a small amount of cash kept on hand to cover small, and often unexpected, expenses that pop up during a business day. You might use money from the petty cash fund to pay for minor expenses such as postage, Uber fares, or reimburse someone $10 for bringing in a box of donuts. Once each year, a company reviews the standard operating procedures, interviews and observes the petty cash custodian and creates audit trails. For example, they may review pre-numbered petty cash vouchers to ensure that no vouchers are missing and randomly pick petty cash disbursements and accounting entries to review from beginning to end.
Petty Cash, cash equivalents, change funds and special cash funds must be used strictly in accordance with the purpose for which they were established and authorized. Financial responsibility for these funds resides with the host department. If you use accrual accounting, the top-up may be credited from accounts payable instead of cash.
How Do I Set Up A Proper Petty Cash System?
You must record petty cash transactions, even if you think they’re too low to matter. Without a petty cash system, using small cash amounts periodically can add up to a major discrepancy in your books.
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.
In some tubs, these duties are performed at the Tub Finance Office and in others at the departments. See the Detailed Procedures in Appendix A for step by step instructions on how to open, replenish and close a petty cash fund, change the amount of a petty cash fund or change a Custodian. See the Short-Term Operating Advances Policy for more information.
How Do You Balance Petty Cash In Accounting?
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. 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.
While a petty cash fund may not be necessary if you work solo, if you have even one employee, it may be worth it to set up a petty cash fund to manage those unexpected expenses properly. Applicant Tracking Choosing the best applicant tracking system is crucial to having a smooth recruitment process that saves you time and money.
To improve the way you handle petty cash accounting, require a petty cash receipt for each transaction. And, create a petty cash slip indicating the amount, employee’s name, and date when you give employees petty cash.
Step 7: Get Used To Replenishing Your Petty Cash Fund
A online bookkeepingier might be assigned to issue the check to fund the petty cash drawer and make the appropriate accounting entries. The petty cash custodian is charged with distributing the cash and collecting receipts for all purchases or any uses of the funds.
Petty Cash
Petty cash can also work for frequent but mundane expenses, like milk for the office fridge, stamps, or cleaning supplies. “Petty cash” and “cash on hand” sound a lot alike, and they do overlap. Petty cash’s main advantages are that it’s quick, convenient, and easy to understand and use. Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries.
Changing The Names Of Custodians
The funds in petty cash typically cover small expenses and employee reimbursements for small expenses. Keep the petty cash box in a secure location, known only to one or two people.
It’s best to put your What is bookkeeping policy in writing and provide some examples of appropriate expenses. You may also put a limit, such as $25, on all petty cash transactions. Companies often use petty cash to pay for small office supplies, postage, flowers, cab fares and other small purchases as well as to reimburse someone for bringing in something like lunch or coffee. Most people use petty cash for things like buying office supplies, paying for postage, and so on.
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The initial petty cash journal entry is a debit to the petty cash account and a credit to the cash account. Every company, regardless of size, can benefit from having a petty cash fund as part of their accounting process to pay for minor expenses and employee reimbursements. If you have a petty cash account that you can use to manage your company’s transactions, it becomes easier for you to track tax-deductible expenses and separate business expenses from personal expenses.
Author: Emmett Gienapp
