Before going to the cashier, she should first complete the bottom of the petty cash log. If you’re familiar with petty cash and need some help understanding how to record the journal entries, here are the most common petty cash journal entries in the bookkeeping process. It might seem tedious to log every tiny expense in this way, but there’s nothing petty about petty cash expenses. You must document all of your petty cash expenses if you want to write them off on your taxes, just like you would any other income or expense. Let’s say that at the end of the month, you have $49.15 remaining in your cash box, and you want to top your petty cash fund by $150.85 to get it back up to $200. It sure would be nice to have some spare cash around to pay for these small business expenses, wouldn’t it?
Systems for Maintaining Petty Cash
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There are various scenarios where it makes more sense to use petty cash rather than reimbursing an employee through their paycheck. Once you’ve entered your petty cash transactions on the books, your bookkeeping can use them while creating financial statements—so you can accurately factor petty cash into your expenses. 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 petty cash custodian is in charge of managing the petty cash fund.
Petty cash accounting
Regardless of how they’re used, they need to be kept secure and well-documented. However, for small companies, it may only be between £100 and £500 total. The amount of petty cash depends upon the size of the business, and the expenses that occur. 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. Making sure that any expense you reimburse has a receipt is also helpful.
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Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License . The entire point of petty cash is to have accessible cash for small scenarios or needs. If you find yourself going through petty cash rapidly, you can increase the amount of petty cash you keep on hand. Also, take a few minutes to see what you’re spending petty cash on. Sign up to receive more well-researched small business articles and topics in your inbox, personalized for you. Based on the information above, fill out the fields to record the expense.
- If you have more than one employee, you could delegate managing the account.
- It works well to cover small impromptu expenses—like a tip for the kid delivering pizzas to the lunch meeting, or cab fare home for employees working late.
- Petty cash, or petty cash fund, is a small amount of cash your business keeps on hand to pay for smaller business expenses.
- Your postage machine just stopped working, and you need to send one of your employees to the post office fast to get some stamps.
Why do I need a properly set up petty cash fund?
The book in which these small payments are recorded is known as the petty cash book. The funds used for small payments are known as petty cash, and the person responsible for making and recording these payments is the petty cashier. When employees have small expenses, they present receipts to a designated cashier, who logs them in a petty cash book or spreadsheet and reimburses them.
Step 6: Start using your petty cash fund
For slightly larger small businesses, this might be your office administrator. 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. Often, a few individuals are authorized to approve disbursements and can only do so for expenses related to legitimate company activities or operations. Many of your business expenses are tax deductible, including purchases made with your petty cash fund. You must document each expense if you want to deduct it from your business taxes.
Cash on hand is any accessible cash the business or liquid funds have. It can be in the form of actual money, like amounts you haven’t yet deposited in the bank or smaller bills and coins that you keep in the cash register to make change for customers. For petty cash reconciliation, subtract the amount in your petty cash fund from the amount stated in your books. Compare this amount to the total amount listed on your receipts to determine if your accounts are equal. You (or your petty cash cashier) must also create journal entries showing what petty cash funds go toward. An employee using petty cash should provide a receipt for the purchase to the petty cash custodian.
If the employee needs to spend more than the petty cash request limit, they can use the business credit card. For example, you might send an employee to pick up office supplies, like staples or printer paper. You would use your petty cash fund to reimburse your employee for the purchase of the supplies.
This will set you up for success, not a petty cash accounting nightmare. 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. Even then, a petty cash fund is only appropriate enhance accountancy » accountancy and business growth services if there is someone to monitor it and track the use of the money. A petty cash book also refers to the book in which small payments are recorded, which are not convenient to record in the main cash book. Most enterprises handle their business expenses through petty cash funds.
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. Furthermore, keep a Microsoft Excel doc or other spreadsheets that tracks who spent what, when it was spent, and the total amount of spending for both the month and year to date. Not only will this help you hold employees accountable, it will also ensure you’re more prepared at tax time. It is also appropriate for companies to either keep their petty cash in just one office or the main office of each division of the company.
Often, imprest systems commence with a fixed amount and are replenished as funds diminish, ensuring efficient handling of minor expenditures during daily operations. The key or combination should not be made readily available to all employees. Only the business owner and the petty cash custodian should have access. Review and reconciliation of the petty cash funds should be done periodically.
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. At the end of July, in the petty cash box there should be a receipt for the postage stamp purchase, a receipt for the milk, a receipt for the window cleaner, and the remaining cash. The employee in charge of the petty cash box should sign each receipt when the purchase is made.
It saves the hassle of reimbursing people or expecting them to pay out-of-pocket for work-related items. 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 reconciliation process ensures that the fund’s remaining balance equals the difference between the original balance minus charges detailed on receipts and invoices. If the remaining balance is less than what it should be, there is a shortage. If the remaining balance is more than what it should be, there is an overage.
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. For additional security, you can require the custodian to keep a log of who refunds are given to.
The balance in the petty cash account is now $300, which is where it was originally authorized to be. The amount spent by the petty cashier is reimbursed, thus making up the balance to the original amount. The difference between the sum of the debit items and the sum of the credit items represents the balance of the petty cash in hand.