The person who receives the receipts from the fund custodian and issues checks to replenish the fund is called a petty cash cashier. Ultimately, it’s the accounting team’s responsibility to include these expenses in the general ledger. Whenever a small amount is utilized to settle expenses, it must be replenished. The custodian must gather all slips and vouchers issued to different people in the firm. These details are recorded in the general ledger as credits to the petty cash account and as debit detail to other expense accounts. As soon as the petty fund is replenished, it is recorded as a debit to the petty cash account and credit to the cash account.
- Because for calculating the ending balance of cash, the petty cash amount should be combined with the cash in hand account.
- This could include expenses such as office supplies or refreshments.
- Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.
- Most purchases made with petty cash are unexpected expenses that can pop up, such as morning coffee for a meeting or dinner for an employee working overtime.
It can speed up the reimbursement process, and your employees need not spend money out of their pockets for immediate and petty expenses. Most companies maintain a petty cash fund balance of anywhere from $100 to $500, but the amount will depend on your petty cash needs. To illustrate further, assume that we have a fund balance of $500. Our policy states that petty cash reimbursements shouldn’t exceed 10% of the fund balance. This means that expenses above $50 cannot be charged to petty cash.
You should deposit the surplus petty cash into the company bank account. If you’re planning to create a petty cash fund, there are three basic procedures that are essential to follow. These procedures will allow you to keep your funds safe and to keep track of your funds.
If, after adding up all the receipts, the total doesn’t match the sum of the disbursed funds – if there is a shortage or an overage – this is a signal that an error occurred. The matter should always be investigated, no matter how small the discrepancy. It could be a simple mathematical error or a more severe problem.
How to manage petty cash?
The security aspect is often important to small companies, who have long feared that keeping cash around is an invitation to crime.
- Therefore, it is appropriate to keep only enough petty cash available for emergency and convenience needs.
- However, you can calculate the current assets on your own if you are not provided the figure.
- After procuring the petty cash, the custodian will store the petty cash in a box and lock it.
- Therefore, choose a reconciliation system that works for your firm.
“Petty cash” and “cash on hand” sound a lot alike, and they do overlap. Use our product selector to find the best accounting software for you. She is a Business Content writer and Management contributor at 12Manage.com, where she contributes a business article weekly. She has over 2 years of experience in writing about accounting, finance, and business. At Finance Strategists, we partner with financial experts to ensure the accuracy of our financial content.
Petty Cash vs. Cash on Hand
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 if there is someone to monitor it and track the use of the money. A petty cash fund gives a small business the flexibility of quickly reimbursing or paying small expenditures without having to write a company check or use a company credit card. An employee can run out to the post office, not knowing the exact amount of postage needed on an item for the mail, and take petty cash with them to pay for the expenditure. Your available cash should always match the amount recorded in your petty cash log.
These receipts can be exchanged for a new check made to cash the total amount equal to the receipt. Once the check is cashed, this amount will be added to the petty cash fund to restore the funds to its original level. The amount in your petty cash box should always remain constant.
How To Manage Petty Cash
However, we can also specify that certain expenses are always chargeable to petty cash, even if they’re above $50. It is also appropriate for companies to either keep their what is the saver’s credit petty cash in just one office or the main office of each division of the company. The important thing is to monitor your petty cash and keep track of it on a ledger.
Petty cash expenses list
The receipt will be used later as back up for recording the petty cash transaction as an expense in your general ledger. Jane stops to pick up two boxes of donuts, leaving her with $5 in her wallet. Fortunately, her office has a petty cash fund, which her boss immediately reimburses her from, so Jane doesn’t have to submit an expense report and wait for weeks to be reimbursed. If you have more than one employee, you could delegate managing the account.
If you do, that employee is called the fund or account custodian. The custodian is tasked to overlook and safeguard the account by issuing cash, approving reimbursements, and recording the debits and credits to the account. However, on corporate financial statements, petty cash is listed in the “Cash and cash equivalents” section of the balance sheet. At the end of the month, the petty cash box had $78 of receipts and $22 cash left. But if you find that most of your petty cash is not being used, the fund amount might be too large.
Though not literally cash, it’s money that can be easily and quickly accessed, which is why it’s “on hand.” A petty cashier 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. As the petty cash total declines, the receipts should increase and add up to the total amount withdrawn.