Petty Cash/ Petty Cash fund
Petty Cash [also known as Petty Cash Fund] is a small amount of money kept on hand by a business to cover trivial expenditures. Often, the company will keep the cash on its premises for incidental purchases during office operations.
To avoid mismanagement of these funds, a company should have tight control over the fund to ensure legal accountability – for tax purposes.
Petty Cash expenses – examples
Petty cash expenses are mostly small fees or costs incurred during business activities. They may include:
- Buying minor office supplies like ink and printer paper.
- Impromptu business expenses like taking unexpected taxis for business purposes.
- Subscriptions and licenses.
- Giving an advance for payment.
- Cards, flowers, or other small gifts.
- Buy your employees coffee, small meals, water, or treats – for example, during business meetings.
- Reimburse job interviewees.
- Reimbursing an employee for minor work-related expenses.
- Postage stamps, courier services or other shipping fees.
Setting up a Petty Cash [Fund] Management system correctly
To accurately account for your Petty Cash, you must have a set of procedures. They include:
TIP 1: Designate custodian[s]
Appoint someone to take care of the fund for accountability purposes. It could be one person or different people in your finance department who will:
- Prepare the Petty cash voucher in the amount assigned to the Petty Cash fund – for example, a cashier.
- Authoriser – they approve the disbursement before the money is taken out of the cash box. They will also ensure the cash entries are entered correctly and reconcile them from time to time.
Tip 2: Find a safe place to keep the funds
Most businesses will have a secure drawer, lock box, cash register or file cabinet in which they keep the allocated funds. You may have separate secured places for different departments – depending on the size of your organisation.
Tip 3: Get funds
The Petty Cash Fund should have enough money [petty cash float] to support the purchases expected in that account. You must also replenish the funds when they reduce – do not wait for the funds to deplete.
Tip 4: Monitor and keep expense records
Custodians must keep a record of all disbursements – in a log. The log will ease account reconciliation at the end of the reporting period.
Additionally, someone other than the custodian should periodically check the receipts and vouchers, reconciliation of expenditures, and fund aggregates to ensure everything is compliant.
Petty Cash records
It is crucial to keep Petty cash records in a Petty Cash Book, Petty Cash Excel log template or a reliable petty cash accounting system.
Petty Cash Book
It is a ledger where you record all the receipts and payments going in and out of petty cash. It shows:
- Your purchase
- The date when the purchase was made.
- The total amount of the purchases made.
- Running balance that shows your expenditure and remaining amount.
Accounting system
Several petty cash management systems can be used to automate your Petty Cash log – and sync the expenses to your accounting system. Examples are Pleo and Spendesk.
Petty Cash Excel logs
You can use petty cash excel spreadsheets to record and summarise your petty cash receipts – then enter the subtotals into your bookkeeping software.
What is a petty cash voucher?
A petty cash voucher is the document filled by an employee when they want to be reimbursed for a purchase. It usually has details of:
- Voucher Date
- Voucher number
- Recipients name
- Descriptions of the purchased items
- The total amount spent
- Details of the person [s] who prepares and authorised the voucher
Accounting for Petty Cash
Expense or asset account?
Since its money owned by the business, the petty cash amount should be recorded in the business’s asset accounts.
When the fund is in use, the petty cash transactions are recorded on your business’s financial statements.
Petty Cash on the balance sheet and profit and loss account
The Petty Cash figures are recorded by posting the expenses to the profit and loss account and reducing the Petty Cash balance on the balance sheet.
When recording money withdrawn from the bank – reduce the bank balance and increase your petty cash balance.
Petty Cash Journal entries
When using Petty Cash, do not make any accounting journal entries after purchasing an expense. However, only record a journal entry when you need new funds —in exchange for the receipts. In such a case, the journal entry is a debit to the petty cash fund and a credit to the cash account.
In case of a short or over – talk to Spondoo Accountants for support.
Petty cash reconciliation
In time, if the fund is in use, the cash balance in the petty cash fund should decline as the number of receipts increases. In the end, the total amount of the receipts added to the remaining cash should aggregate to the initial amount of petty cash funding. Regular petty cash reconciliation is necessary to ensure the balances remain correct.
When the fund falls to minimal levels, the Petty Cash Fund is replenished with the total amount of the receipts from the purchases that diminished the cash. The requested amount should refill the Petty fund to its original amount – as intended for the fund. Consequently, the Petty Cash journal entry becomes a debit to the Petty Cash account and a credit to the cash account.
At this point, the custodian should create a journal entry to record the petty cash receipts as a credit to the Petty Cash. After this, the balance in the Petty cash account should equal the amount at which it started.
Petty Cash accounting – an example
ABC Company sets up Petty Cash and funds it with £450. The entry would be:
| Particulars | Debit | Credit |
| Petty Cash | £450 | |
| Cash | £450 |
If the fund diminishes to only £15, the custodian should replenish it with an amount equivalent to the used amount. In this case, it is £435 [450-15= 435]. The entry would read:
| Particulars | Debit | Credit |
| Petty Cash | £435 | |
| Cash | £435 |
When the custodian records the submitted expenses associated with the petty cash receipts – the entry would be:
| Particulars | Debit | Credit |
| Expenses | £435 | |
| Petty Cash | £435 |
Petty Cash vs Cash On Hand – the difference
Cash on hand is any amount of money that is accessible to a business – both physical and liquid funds. Contrarily, Petty Cash is the amount you have on hand to cover purchases paid with cash – not a cheque or credit card. Petty Cash is part of Cash On hand – but they are not the same.
Petty Cash alternatives
Instead of Petty Cash, some companies issue their employees with:
- Bank debit cards
- Payment cards for expenses
- Claim back payments for sundry items as business expenses.
Please contact us if you need further guidance on petty cash. We can also provide you with bookkeeping and accounting services.