In addition to a log, your company’s policies should include a requirement for receipts to be provided for every purchase. The log will allow for proper reconciliation of the account at the end of the reporting period when financial statements are prepared. Record Disbursementsįor proper administration and accounting of the petty cash account, the custodian should maintain a log of all disbursements. These policies will identify the sort of transactions that qualify as petty cash expenses, and it will establish guidelines for how these business expenses are to be documented. Your company will also want to have a set of policies in place to establish how the petty cash funds are spent and administered. This helps ensure accountability and protects against theft or fraud. Only the custodian and other specifically designated individuals, such as the CFO, may possess the key. Once the cash has been released to the petty cash fund, you will want to secure it, most likely in a lock box, safe, or a locked drawer or file cabinet. Small businesses are just as likely to have a petty cash fund as a large corporation, but the total amount in the fund will vary. The petty cash balance should be sufficient to support the amount of activity expected in the account, and will typically be a reflection of the size of the company. Cash is allocated to the fund in that amount from the company’s checking account, and the balance is maintained as purchases occur. Fund the AccountĪlso under the imprest system, a balance is predetermined for the petty cash fund. Designating a custodian establishes accountability and reduces the incidence of error or fraud by minimizing the number of employees who have access to the cash in the fund. The custodian will be the primary person in the organization responsible for managing the petty cash.
The first step in the imprest system is to appoint a petty cash custodian. Setting up a petty cash management sysem will include a number of essential elements, such as a designated custodian for managing the account, a source of funding, policies and procedures for managing the expenses, and accounting procedures for expense reconciliation. This replenishment will come from another account. The process for managing your petty cash fund is commonly referred to as the “imprest system.” This a form of financial accounting and the basic characteristic is that a fixed amount is reserved and is replenished after money is spent.
LEARNING FACTORY PETTY CASH FORM HOW TO
How to Set Up a Petty Cash Management System Reimbursing an employee for small work-related expensesĬourier or other last-minute shipping fees Paying for a small meal, coffee, or treats for employees Examples of transactions a petty cash fund could be used for include: The amount of petty cash (bills and coins) will vary by company, usually $100-500. Petty cash offers a business convenience for small transactions when a check or a corporate credit card is unreasonable, unacceptable, or unavailable. Having such a system in place serves as an internal control to protect the business against theft and fraud, and it supports the larger, general ledger reconciliation process. Not surprisingly, petty cash funds are vulnerable to misuse and could even lead to outright fraud.Ī petty cash management system helps companies ensure that the funds are used appropriately and the transactions are properly documented. Your business will need to have a petty cash fund for these or similar small expenses, and you will need to have a process in place-petty cash management-to properly account for those purchases.
While non-cash transactions are increasingly becoming the norm for most transactions, cash is still needed to cover small, “one-off” purchases. When petty cash is used for a business expense, the appropriate expense account, for example office supplies or employee reimbursement, should be expensed. The journal entry on the balance sheet would show a debit to the business bank account and a credit to the petty cash account. When first funding a petty cash account, the accountant should write a check made out to "Petty Cash" for the desired amount of petty cash and then cash the check at the company's bank. Petty cash is a current asset and should be listed as a debit on the balance sheet. Petty cash is a relatively small amount of cash on hand available for employees of a business to make small, non-recurring purchases easily and quickly.
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