Ways to Manage Petty Cash Effectively

For example, the iEduNote company decided to increase the petty cash fund from $500 to 700. For this change, the general new journal entry is the same as above. If any alteration of established petty cash fund is not required, the new journal entry is not needed. As the petty cashier does not collect cash, he can pay more attention to the expenses incurred and their proper recording.

For this reason, your custodian will fill out a receipt when disbursing money to ensure that the total money will add up to the initial amount of your petty cash fund. The petty cashier prepares a statement of petty cash expenditure and sends it along with all petty cash receipts to the cash department. Journal entry is not required for a cash payment of transactions from a petty cash fund.

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Before going to the cashier, she should first complete the bottom of the petty cash log. In the petty cash policy document, we should state that the petty cash fund is $500 with Heather Smith as the custodian. She should also sign the document to transfer the petty cash fund accountability to her. The reconciliation is straightforward—every time you take cash out of the box, you replace the cash with a receipt for the same amount.

• Jane doesn’t have a credit card and has only $25 to last her until she gets paid.
• When petty cash fund is almost exhausted due to the increase in many petty cash receipts, the fund is replenished with an equal amount of money spent.
• Working with a remote bookkeeping service will still provide you with all the value you could get from an in-office bookkeeper but at a fraction of the cost.
• Cash is king, but without proper bookkeeping procedures in place, mishandling cash can cause business failure.

The replenishment of the fund should match the total of the receipts from the specified time period. If they don’t, then funds have been spent and are not accounted for. While a petty cash fund may not be necessary if you work solo, if you have even one employee, it may be worth it to set up a petty cash fund to manage those unexpected expenses properly. Petty cash isn’t usually a significant expense for your business.

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Doing so eliminates or at least reduces the mistakes in calculations, approvals, and transactions. Manage your petty cash fund effectively by establishing an expense limit. This is the maximum amount your employees can use when they draw from this fund and pay for small expenses. Any amount that goes beyond the number you determined should be paid for using another account. To record the petty cash transactions for August, you would need to record the expenses as a journal entry. The petty cash log should include the date, details of the transaction, the cash you put into petty cash, the amount distributed, and a running balance.

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If the cash total matches the ending balance on your reconciliation form, the petty cash is balanced. If you have more cash or less cash, you have an overage or shortage that requires investigation. As CEO and Co-Founder, Mike leads FloQast’s corporate vision, strategy and execution. Prior to founding FloQast, he managed the accounting team at Cornerstone OnDemand, a SaaS company in Los Angeles.

Record disbursements

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.

Fundamentals

Here you will learn how to keep a petty cash log, when to use petty cash
slips, and how to stay on top of the petty cash float. Pay attention to how much and how often you reimburse your cash. You may need to adjust how petty cash is managed over time as the business grows or its needs change. You may even need to raise or lower the amount kept on hand to account for cycles like your busy season and slow season. But just because the dollar amounts flowing through your petty cash fund are typically minimal, doesn’t make it any less important to manage them properly.

So petty cash refers to a small sum of money set aside for trifling or little purchases, as opposed to major expenses or bills. This enables your petty cash manager to monitor where money goes, who needs reimbursement, and when they need to replenish your company’s petty cash. These are https://personal-accounting.org/what-is-petty-cash/ some of the practices you can implement to manage your company’s petty cash fund effectively. Need more help implementing effective bookkeeping strategies for your multi-location business or small business? Outsourcing your bookkeeping with SLC provides more than just clean books.