What Is Petty Cash And How To Manage And Record It

Payments for meal money and similar subsistence allowances to employees or students. Reimbursement of occasional business-related expenses of less than $60.00.

Finance sees it as a cash drain, since they have to budget for more than they’ve projected in order to cover expenses in the field. And for larger expenses — travel, in particular — it’s hopelessly inefficient. Your employees need petty cash to make necessary outside purchases, but they have to jump through hoops to deal with it. That cash is supposed to be “petty” — dealt with in small amounts. Unfortunately, the more petty cash transactions you have outside the office, the less petty — and less manageable — it gets. Petty cash is a store of money kept in an office to be used on various office expenditures. The problems with petty cash are largely embodied in its name.

Ii Establishing A New Petty Cash Or Change Fund

Purchases over $100 should be made using other procurement methods such as the purchasing card. Kilpatrick’s staff has defended her handling of the petty cash fund. Reconcile and turn in all petty cash, mileage forms or other outstanding reimbursable expenses paperwork. The sum of your reimbursement request and the remaining cash on hand should equal the amount of the original imprest fund. Internal controls are also designed to protect employees from inappropriate charges of mishandling funds by defining his/her responsibilities in the handling process. Petty Cash cannot be used for salaries or wages, travel advances, items prohibited by University policy, or for cashing personal checks. If you use accrual accounting, the top-up may be credited from accounts payable instead of cash.

• Petty cash is simply any physical cash your business keeps on hand to pay for small, unplanned expenses.
• When you are setting up a petty cash system for your business, you must establish clear and concise conditions so that the funds are not misappropriated.
• Reimbursement of occasional business-related expenses of less than $60.00.
• Wherever possible, departments should use other disbursement methods instead of petty cash.
• Complete an account edit in KFS to close the petty cash/cash drawer account.
• To determine a maximum amount for petty cash, keep records on expenditures over a period of time, using an average amount for each week, for example.
• 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.

To request an increase to the amount of a petty cash or change fund, complete an Authorization to Increase/Decrease a Petty Cash or Change Fund form, submit to University Cashiering for approval. If the increase is approved, cash will be issued to the Custodian upon presenting a valid Duke ID at the University Cashier’s office. Used to record the original petty cash/cash drawer value. This account is not changed unless there is a change in the value of the petty cash/cash drawer. All entries to reimburse the petty cash are charged to an operating account, not the original petty cash account.

Expenditures

For instance, let’s say your company’s $100 petty cash fund currently has an available balance of $10. A summary of the vouchers reveals disbursements of $20 for shipping to customers, $20 for an advance to an employee and $50 for stamps. Once the vouchers have been verified and approved, a check is created for $90 that restores the cash in the petty cash fund to its $100 balance.

To establish a fund, the dean, director or department chair will need to submit a letter to the University Controller with a list of requirements and follow the procedure listed below. The letter of request is reviewed by Accounting Services who then prepare a voucher instructing Accounts Payable to issue a check to the petty cash fund administrator appointed within the department. The petty cash fund administrator within the department is responsible for implementing proper controls, retaining receipts and safeguarding the cash.

Definition Of Petty Cash

This also makes it easy for internal auditors to review petty cash records. With petty cash on hand, there is an increased tendency to spend the money freely without attention to detail. This lack of attention can lead to a missing or inadequate paper trail, and sometimes fraud or theft. Of course, overseeing a petty cash fund is still going to add another layer — albeit a small one — to your accounting function. Contact us if you need help establishing a petty cash fund and its conditions.

When disbursing money from the fund, the petty cash custodian prepares a voucher that requires the requester’s signature. A petty cash voucher is a form or document that reflects the amount and the reason for petty cash disbursement. The custodian is required to prepare a voucher for each disbursement and attach any source documents for expenses to the voucher, such as invoices and receipts. The custodian must also ensure at all times that the cash available and the petty cash vouchers are equal to the fund’s original total amount. To help departments pay for small expenses for everyday business and have cash on hand for these situations, a petty cash fund can be set up within the department.

Step 1: Get A Lockbox Or Cash Register

A petty cash fund will undergo periodic reconciliations, with transactions also recorded on the financial statements. In larger corporations, each department might have its own petty cash fund. 2.1 All petty cash replenishment of Petty Cash Funds is requested through the Business Office and includes the completed petty cash voucher, documentation and completedPurchase Requisition. Contact the accounting manager for additional information. 1.3 All reimbursements of Petty Cash Funds are requested through the petty cash custodian using aPetty Cash Voucher. To close a petty cash or change fund .If the petty cash fund is not at the authorized amount, reimburse the fund to its original authorized amount.

To pay for small purchases which require cash, such as food for the office lunch or coffee supplies, or for parking. Most retail businesses keep a cash drawer as do healthcare practices. Cash on hand and receipts for disbursements made should always equal the assigned amount of the petty cash fund. Petty cash funds may not be deposited into personal bank accounts or commingled with other funds. Procedures for closing a petty cash fund as well as changing the accounting for the fund, the custodian, or the amount are available at FBS Administrative Guidelines, Petty Cash Funds. Blakely testified that none of the inmates ever went without their money and that the fund was used as a petty cash account or for cashing checks. However, if the petty cash fund is too small and requires replenishment every few days, the entry to reflect an increase in the fund credits cash for the amount of the increase and debits petty cash.

The Internal Revenue Service recommends filing out petty cash slips and attaching them to receipts to record and document petty cash expenses. Petty cash is a nominal amount of money readily accessible for paying expenses too small to merit writing a check or using a credit card.

How Do I Set Up A Proper Petty Cash System?

If the research subject-testing project is a “one-time” event, the Principal Investigator should request a Cash Advance. When a petty cash fund is in use, petty cash transactions are still recorded on financial statements. The journal entry for giving the custodian more cash is a debit to the petty cash fund and a credit to cash. Managing your petty cash funds begins as soon as the first check has been cashed to create the petty cash float. For example, if you have decided on a petty cash fund for $100, your petty cash account book entry will show a debit of $100 to your petty cash fund and a credit of $100 to your bank account. Departments should evaluate their business needs and limit the petty cash account to the lowest amount that will meet those needs in a 30-day period. Every company, regardless of size, can benefit from having a petty cash fund as part of their accounting process to pay for minor expenses and employee reimbursements.

The petty cash custodian brings all the slips or vouchers to the business’ bookkeeper, cashier, or accountant. The petty cash receipts are logged into the company’s General Ledger as credits to the petty cash account, and probably debits to several different expense accounts. When the petty fund is replenished, usually by drawing on a company-issued check, it’s recorded as a debit to the petty cash account and a credit to the cash account.

In addition, all funds should be replenished at fiscal year end so there are no outstanding receipts as of June 30th. Petty cash is a convenient way to cover expenses too small to pay for with a business check.

• If this sounds like a lot of work just to maintain a $100 fund, there are good reasons for it.
• While it shouldn’t be a habitual practice, petty cash in a pinch can be used to make change for customers, if the till’s running short.
• Custodians are required to complete Petty Cash Training.
• Departments that have an ongoing need to accept cash as a form of payment for goods or services will also use a petty cash fund to make change.
• Make sure everyone with access to petty cash funds knows what they’re for, and provide some examples of typical petty cash expenses to make sure there’s no confusion.
• Click here for further information on departmental deposits.
• Complete an Accounts Payable Check Request; refer to section IV for instructions on completing this form.

Proof of purchase must be provided in the form of such things as the original cash receipt, paid receipt or invoice marked paid. The petty cash funds are audited periodically what is petty cash to ensure appropriate use of funds and to verify balances. Each fiscal year, University Cashiering verifies each petty cash and change fund’s balance.

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. Once the cheque is cashed, the custodian again has cash at the original amount of $100. 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. You don’t need to give every employee access to petty cash, and your petty cash custodian should be the only person permitted to disburse it.

• Petty Cash custodians are responsible for safeguarding petty cash funds and Maintaining receipts and detailed records to support all transactions.
• 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.
• When disbursing money from the fund, the petty cash custodian prepares a voucher that requires the requester’s signature.
• Oversight of petty cash is important because of the potential for abuse.
• However, if the petty cash fund is too small and requires replenishment every few days, the entry to reflect an increase in the fund credits cash for the amount of the increase and debits petty cash.

This fund is accounted for like it was another bank account. Petty cash has it’s own asset account and is reconciled at the end of every period. In order to put money into the petty cash account, money has to be taken out of the business checking account.

As the petty cash fund is depleted, replenishment may be made by reconciliation with receipts. The purpose of a petty cash fund is to assist departments in conducting low-value purchases for which a bluCard can not be used. Petty cash funds may also be used to compensate human subjects in research efforts where payment by Human Subject Prepaid Card or check is not feasible. Departments that have an ongoing need to accept cash as a form of payment for goods or services will also use a petty cash fund to make change.