For additional security, you can require the custodian to keep a log of who refunds are given to. You might even enter the names of employees who request funds and why they may need them—it might indicate an expense you weren’t aware of. If you’re a small business owner, it’s important to understand how petty cash can be used so you can account for it correctly in your books.
- When the petty cash is replenished, the general ledger expense accounts will record the expenses.
- Since it is a current asset, petty cash is recorded as a debit on a company’s asset report.
- Ledger entry for each expense is not directly posted instead a petty cash account is maintained in the firm’s ledger.
The petty cash accounting process requires creating a log of all your transactions. As well as recording petty cash journal entries when money is put into and out of the petty cash fund, record petty cash transactions at least once a month in your books. Once you begin creating the petty cash float, your petty cash account book entry will show a debit of the amount deducted to your petty cash fund. At the same time, it will show a credit of that same amount to your bank account. Petty cash or a petty cash fund is a small amount of money available for paying small expenses without writing a check.
Improved Cash Flow
The petty cash balance on the log should also be regularly reconciled with the actual petty cash fund. Access more informative articles from the QuickBooks Blog that help grow and cash reconciliation improve small businesses. QuickBooks also provides a wide product suite from inventory management to expenses tracking, that further enhances your business’ financial wellbeing.
Petty cash reduces the need for staff to pay for purchases out of pocket, then claim the amount back through company expenses. What often happens is that users of petty cash will leave handwritten notes for cash taken out of the fund and forget to ask for receipts. Petty cash is a small amount of discretionary cash that a business will keep afloat in the office. It’s to cover ad-hoc expenses that would be inconvenient to write a cheque for.
Use Technology To Use Petty Cash Properly
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Some tips on how to run a petty cash fund effectively
Even if you think petty cash transactions aren’t important, they must be recorded. Using small cash payments can sometimes cause a significant difference in your logs without a petty cash system. You can claim tax deductions if you keep logbooks of all your company’s expenses. If you’re looking to manage your petty cash fund well; it will take time and effort.
What is the approximate value of your cash savings and other investments?
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. 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.
While these are main steps that small business owners take to utilize petty cash, there are other processes that should be considered to get the most out of it in the long run. There are a number of ways that businesses can benefit (and suffer) from having petty cash at their disposal. Anyone who has ever run a small business knows that petty cash always plays an important role. There’s no doubt that most small business owners regularly have to deal with it. As a practical entrepreneur, you can’t expect everything to go your way. These costs can be urgent, and you may have to handle them immediately.
Making sure that any expense you reimburse has a receipt is also helpful. Before you start a petty cash fund, you’ll need to decide how much you want the fund to be. Between $100 and $200 is fairly common, though you can go lower or higher, depending on your business. The balance in the petty cash account is now $300, which is where it was originally authorized to be.