The petty cash custodian is the person accountable for the petty cash fund. They’ll be in charge of handling and disbursing petty cash and ensuring that the petty cash fund is used for its intended purpose. They’re also responsible for the safekeeping of the physical cash and possess the key to the lockbox where the cash and receipts are kept. With a petty cash fund in place, you can pay for small expenses like postage stamps, office supplies, office food and drinks, fuel expenses, parking tickets, and other unpredictable expenses. Any expense that’s too small to write a check for can be paid with cash from the petty cash fund.
Petty cash is literally cash, dollars and coins kept on hand so that a company can distribute small amounts of cash without having to write a check or use a credit card. The amount of cash kept in a petty cash fund can range from $30 to $500, depending on the size and operations of a company. This money is usually kept in a locked drawer or safe that petty cash custodians are in charge of. 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 As the petty cash total declines, the receipts should increase and add up to the total amount withdrawn.
Step 5: Complete the Bottom Portion of the Petty Cash Log
Once the cheque is cashed, the custodian again has cash at the original amount of $100. Reconciliation of the petty cash fund should be done periodically to ensure that the fund’s balance is correct. The fund can be replenished back to the approved amount as required. Petty cash refers to a small amount of hard currency that a businesses will keep on hand to pay for miscellaneous and unexpected items, such as team lunches, birthday cakes, or office snacks. Petty cash is usually a relatively small amount, and is grouped with the general cash account on the balance sheet in current assets.
The total of the receipts and remaining cash should equal the initial amount of petty cash funding at all times. However, recordation errors and theft may result in a variance from the initial funding amount. This policy establishes the proper uses and administration of petty cash funds. The University requires each petty cash fund to have an approved Custodian, who documents expenditures, keeps receipts, and safeguards the funds. Wherever possible, local units should use other disbursement methods (i.e., HCOM, PCard) instead of petty cash. To set up a petty cash fund, leaders of a company first must assess their needs, decide on a set amount of money they want to set aside as petty cash and record that amount in their ledger.
Once the check is cashed, this amount will be added to the petty cash fund to restore the funds to its original level. A check for cash is prepared in an amount to bring the fund back up to the original level. The check is cashed and the proceeds are placed in the petty cash box.
At the same time, receipts are removed from the petty cash box and formally recorded as expenses. Policies should be established regarding appropriate expenditures that can be paid from petty cash. When a disbursement is made from the fund, a receipt should be placed in the petty cash box.
- If the remaining balance is more than what it should be, there is an overage.
- While most businesses usually have a strategy for managing general expenses, petty cash is often too small to be taken seriously.
- The petty cash is controlled through the use of a petty cash voucher for each payment made.
- Internal controls often restrict the use of the petty cash fund to a select few employees.
- Ensure that the cash is locked away in a petty cash box that requires a key (or a petty cash jar or petty cash tin with lockable features).
This takes the form of a summarization of all the receipts that the custodian has accumulated. The cashier creates a new check in the amount of the receipts, and swaps the check for the receipts. The petty cash journal entry is a debit to the petty cash account and a credit to the cash account. As part of a company’s cash, a petty cash fund is drawn on its checking account, cashing that check and giving the currency and coins to the custodian. If money from the fund is used for expenses, the custodian will use petty cash receipts or vouchers to replace that cash. When the fund is replenished, the expenses will be recorded in the general ledger.
Whatever you decide, it’s important that only one person have access to the fund at any time, to avoid unaccounted for withdrawals and/or theft. Once you determine who will handle petty cash, you’re ready to cash a check and deposit the funds into the petty cash lockbox. 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.
Obviously, companies don’t want lots of cash just sitting around in the office. The amounts vary between companies but may be anywhere from $50 to $500. This amount is usually spent over a period of a month or two, and is replenished when necessary. Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets. In addition to years of corporate accounting experience, he teaches online accounting courses for two universities.
So petty cash refers to a small sum of money set aside for trifling or little purchases, as opposed to major expenses or bills. Petty cash refers specifically to money—literally, coins and bills—that a company keeps on hand for small outlays, usually because using cash is easier than using a check or credit card. But as your factor definition business grows, your petty cash box will have to grow too in order to help your people keep on top of things. Even though a petty cash system is (as the name suggests) cash-based, it still requires the full-blown accounting treatment. This means that petty cash undergoes reconciliation periods just like other expenses do.
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The petty cash custodian pays out cash as requested in exchange for some form of evidence, such as a receipt or a voucher. The aggregate total of all remaining bills, coins, and evidence of receipt in the petty cash fund should always match the authorized amount of cash for that fund. Once the amount of bills and coins in the fund runs low, the custodian takes the receipts and vouchers to the accounting department and swaps them for a replacement amount of bills and coins.
Read this article to discover what petty cash is, its different procedures, and how to manage it. The Cash Short (Over) account is an income statement type account. For example, a retailer will compare daily cash sales to the actual cash found in the cash register drawers. If a surplus or shortage is discovered, the difference will be recorded in Cash Short (Over); a debit balance indicates a shortage (expense), while a credit represents an overage (revenue).
Petty cash is a small amount of cash a company keeps on hand to cover small expenses. Companies sometimes do this to avoid using a credit card or writing a check. As financial transactions have become digital, many options are now available to manage petty cash. Most businesses now use different online platforms to make petty cash available to employees. Business debit cards are now made available to employees for their use.
When Is It Most Appropriate to Use Petty Cash?
Often, a few individuals are authorized to approve disbursements and can only do so for expenses related to legitimate company activities or operations. 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.
Therefore, it is only appropriate to keep petty cash on hand when a trusted employee can keep an eye on it. Do you need to stop and grab donuts for this morning’s staff meeting? Maybe you have an unexpected client drop by and you want to send out for bottled water or soft drinks. Small businesses handle small expenses like this by using a petty cash fund.
Current assets are assets that provide economic benefit within one year. Since petty cash funds can resolve scenarios with readily available cash, this can be considered as providing economic benefits. At the time the entry is made, the custodian will receive a $315 check that’s cashed and the money placed in the lockbox. Overall, there’s a total of $500 in the lockbox after replenishment. Likewise, a prepaid card is an option provided by businesses to employees. Unlike a debit card, the prepaid card is not linked to any account and must be funded by the company.