The cost is then deducted from the petty cash fund and the receipt is kept for accounting purposes. Petty cash can have a variety of uses depending on your industry. You set your own rules about which expenses can be reimbursed and how much the petty cash account can cover.
Therefore, choose a reconciliation system that works for your firm. It can speed up the reimbursement process, and your employees need not spend money out of their pockets for immediate and petty expenses. To record the petty cash transactions for August, you would need to record the expenses as a journal entry.
What Is Petty Cash?
Petty cash or a petty cash fund is a small amount of money available for paying small expenses without writing a check. Petty Cash is also the title of the general ledger current asset account that reports the amount of the company’s petty cash. The amount of petty cash will vary by company and may be in the range of $30 to $300. No matter how large the balance is, it is important for companies to set up a good internal control system that keeps track of all cash inflows and outflows from the petty cash account.
- This cheque would then be cashed to acquire the actual cash needed for payments.
- We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month.
- It might seem tedious to log every tiny expense in this way, but there’s nothing petty about petty cash expenses.
- One or two team members should be in charge of petty cash control.
The cash is kept on site, usually in a secured drawer or safe that can only be accessed by someone with authority to handle the cash. The purpose of the fund is to have some cash on hand in case a small purchase needs to be made. As financial transactions have become digital, many options are now available to manage petty cash. Most businesses petty cash now use different online platforms to make petty cash available to employees. Business debit cards are now made available to employees for their use. For small businesses, petty cash expenses and receipts are recorded in the petty cash book.¹ This is generally a manual process, and the receipts for these entries are also kept in physical form.
Petty cash vs cash on hand: what’s the difference?
If you only have a few employees, fund management may fall to you. Notice how the far right-hand row lists the current balance of the petty cash fund? This lets you reconcile—that’s fancy accounting speak for “double check”—your petty cash fund on the fly. Small businesses will often record all disbursements in a log and put one person in charge of petty cash to make sure none of the funds go missing. When the fund gets low, e.g. $20 remaining, the custodian requests a top up and submits the vouchers for reimbursement. Assuming the vouchers add up to $80, an $80 top up cheque is issued and an $80 debit towards office expenses is recorded.
But if you find that most of your petty cash is not being used, the fund amount might be too large. You should deposit the surplus petty cash into the company bank account. What if you could, with a single tool, safely distribute and efficiently track all your branch petty cash expenses and prevent cash leakage? https://www.bookstime.com/ For instance, a huge organization with hundreds of employees will have a petty cash fund for each department. A Finance Manager is generally responsible for approving any payments made using petty cash. The employee requesting petty cash should also provide the necessary documents backing up the expense.