What is Petty Cash & How to Manage It?

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. Petty cash is often used to make change for customers and pay for small, erratic expenses that pop up. These expenses could be things balance sheet template like office supplies, a small repair, and so on.

Small Businesses

You can also mandate that all petty cash transactions be under a certain dollar amount, like $25. Petty cash management is a vital record-keeping system for tracking daily small business operational expenses. Often, imprest systems commence with a fixed amount and are replenished as funds diminish, ensuring efficient handling of minor expenditures during daily operations. In accounting, you reconcile petty cash by comparing the fund’s current amount to recorded withdrawals and receipts. Discrepancies must be investigated and resolved to ensure the ledger and cash on hand match. The expenditures or purchases made using this cash are not part of the journal entries.

• However, it should be replenished at the end of the accounting period in order to ensure that all expenses are properly recorded.
• The manager uses $10 to pay for an emergency cleaning service after a spill, and an employee is reimbursed $15 for purchasing additional register tape when the store ran out.
• A petty cash account provides an easy way for employees to pay for postage, extra supplies an employee might need, or snacks you might buy for a meeting with a client.
• A systematic approach to recording and tracking helps you identify discrepancies expeditiously and maintains the trustworthiness of the petty cash fund.
• Remember to safeguard all physical receipts or invoices connected to each transaction, as they’re critical during the reconciliation process.

Reconciliation

Make sure to record the employee’s name, the name of the service provider or vendor, and the name of the person who authorized the cash. Petty cash reimbursement example Let’s consider the example of an employee buying office supplies from a local store. They can pay for it using their own money and submit the receipt to the company’s petty cash fund. The petty cash fund custodian will reimburse the employee for the amount spent. This involves keeping a detailed log of all petty cash transactions, including dates, amounts, and purposes.

Ensure proper documentation

• When this happens, the custodian should review all the records carefully and identify where the error occurred.
• In layman’s terms, petty cash is a small amount for impromptu small expenses.
• Management should be concerned about controlling the proper use of petty cash.
• Each branch should have an appointed petty cash custodian who follows the same company-wide petty cash policies.
• Another good practice is to limit the amount of petty cash kept on hand to reduce risk.
• It’s an accessible fund set aside, outside of the main accounting records, to pay for minor necessities that don’t require a check or credit card payment.

A petty cash management solution like Happay is an excellent option for businesses with multiple branches and store locations. All successful companies pay great attention to their expenses and invest hugely in tracking them. Do you have a method to disburse and efficiently track petty cash expenses in your organization? If you have more than one employee, you could delegate managing the account.

Related AccountingTools Courses

Regular audits should be conducted across all branches to ensure compliance and to pinpoint any issues swiftly. By centralizing policy but allowing for local handling, you can manage petty cash effectively, even across a sprawling organization. The petty cashier will be responsible for the petty cash drawer taxpayer identification number tin and making the right accounting entries. Additionally, the petty cash custodian is also responsible for distributing the cash and collecting bills and receipts for all expenses caused by the petty cash. Along with a regular cash book, most companies maintain a separate petty cash book to record small and daily expenses like food, fuel, office supplies, electricity, postage, newspaper, travel, etc.

What Is Petty Cash? The Full Guide For Managers

The amount of petty cash will vary by company and may be in the range of $30 to $300. In conclusion, petty cash is a vital component of a business’s financial framework, facilitating the smooth handling of minor expenses. Through real-world examples, we’ve seen how petty cash is used and accounted for, and by following best practices, companies can maintain control over their small yet significant expenditures. Remember, the key to petty cash management is vigilance, accountability, and precision. With these pillars of proficiency in place, petty cash can be an efficient tool in any business’s financial arsenal.

Next, request a new check from your company’s bank account for this amount, and once cashed, reintroduce this back into the fund to bring it up to the original balance. By keeping the reloading process standardized and transparent, you ensure that the petty cash fund is always ready to support those small, necessary expenditures. To set your business up what are building automation systems bas for success with a petty cash fund, you need to take a structured approach.