How To Do Petty Cash Accounting & Recording in 6 Steps

How To Do Petty Cash Accounting & Recording in 6 Steps

If you find yourself regularly replenishing your petty fund there could be a larger problem at hand. Every time you replenish your fund, look over the spending log to see where the money’s going. If there are any odd transactions or the numbers don’t add up, you could be looking at theft.

If you need help getting a petty cash log started, look up some free petty cash log templates to do some of the work for you. As mentioned, petty cash can make things nice and convenient but does carry certain risks. If you follow some best practices, you can reduce the risks that come with petty cash, and protect yourself and your employees.

  1. The cashier creates a journal entry to record the petty cash receipts.
  2. Record the transfer of cash by debiting Petty Cash and crediting Checking Account.
  3. Even if you trust your employees, cash left out on a table or desk could be stolen by an office visitor or a customer.
  4. Jane doesn’t have a credit card and has only $25 to last her until she gets paid.
  5. If you initially decided that the float is $50, and at the end of the month you have more than $50 the extra should be deposited into the bank account so that you start the new month with $50.
  6. The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.

Though not literally cash, it’s money that can be easily and quickly accessed, which is why it’s «on hand.» Every month, or as cash is needed, the custodian should summarize the petty cash log by expense account and record a journal entry debiting each expense and crediting petty cash. Considered the most beneficial method of bookkeeper petty cash recording petty cash payments. In the analytical version, a separate column is used for each commonly occurring item of expenditure such as stamps, postage & handling, stationery, wages etc. This petty cash replenishment journal entry is one of many bookkeeping entries used in accounting, discover another at the links below.

Four Steps to Setting up the Petty Cash Box

Recording those expenses helps to budget for future ones, and even though those might be small, they add up. When all disbursements are recorded diligently, and the money is replenished regularly, using petty cash can be a real timesaver. You must document each expense if you want to deduct it from your business taxes.

Comments for Petty Cash Fund

The head cashier does not have any problem to know the exact cash of the petty cashier as a fixed amount of cash always lies with the petty cashier. Under this system, it is possible to ascertain and know the number of expenses of the same nature of each column separately for a particular period. The head cashier pays him again $400 for meeting expenditure of February. It depends on the nature, volume and necessity of transactions of a business organization. You can buy pre-printed, numbered petty cash vouchers from a stationery store, or you can design one on your computer.

Petty Cash: What It Is, How It’s Used and Accounted For, Examples

However, a petty cash book maintains all balances that can be subsequently double-checked if there is a need to do so. With the proper bookkeeping, you gain access to accurate records of your income and expenses, while being able to easily track accounts receivable and payable. It should be noted that there is no entry made to the petty cash fund. With an imprest system the balance on the fund (cash + vouchers) is always constant (300).

For petty cash accounting, you must create a log detailing your transactions. And, you must record a petty cash journal entry when you put money into the petty cash fund and when money leaves the fund. Consider recording petty cash transactions in your books at least once per month. Balancing the petty cash account usually occurs when the fund needs to be replenished. The petty cash custodian brings all the slips or vouchers to the business’ bookkeeper, cashier, or accountant.

Any cash received by the cashier is recorded on the debit side of the book. In all businesses, some payments are made by check for better control over cash. However, for the payment of small expenditures (e.g., stationery, travel, postage, and newspapers), paying by check is unreasonable. The chief cashier records petty cash advances to the petty cashier on the credit side of the cash book as “By Petty Cash A/c”. When your petty cash cashier puts money into the petty cash fund, they must create a journal entry in your books.

Don’t: leave the cash unsupervised

Any expense that’s too small to write a check for can be paid with cash from the petty cash fund. Note that it’s a good idea to set a maximum dollar amount for allowable expenses. The petty cash book is a recordation of petty cash expenditures, sorted by date.

Only the custodian can access the lockbox—and it mustn’t be left opened and unattended. However, failing to hold employees accountable for petty cash may encourage theft or inappropriate use of company resources. Assuming iEduNote Company decides to establish a petty cash fund for $500 on 1st July.

Implement periodic counting of the petty cash fund so that it’s updated. After counting, the cash on hand should be reconciled with the petty cash account. Monitor and record the vouchers and receipts to make sure the amounts match. Your small business’ petty cash fund allows you to pay for small operational expenses you’ll incur. Companies use this to pay for travel expenses, immediate utilities payments, postage, and other similar costs. Misuse of this fund will keep your small business short on cash in times when you might need it.

Even though petty cash expenses are usually small, you need to track them. They may be tax deductible and you’ll also have a better sense of where you’re spending cash. Petty cash is cash that businesses keep on hand for small purchases.


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