petty cash

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. After a designated interval—usually, the same time each month or week—it’s time to reconcile or balance the petty fund account. This sum is the total withdrawn from the account during that time period. The English word “petty” derives from the French petit, which means “small” or “little.” Likewise, “petty” means minor or insignificant. 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

Like a general cash book, a petty cash book has a debit and a credit side. All receipts are recorded on the debit side and all payments are recorded on the credit side of petty cash book by the petty cashier.

What Is An Example Of Petty Cash?

Wherever possible, local units should use other disbursement methods (i.e., HCOM, PCard) instead of petty cash. Require that employees maintain a running petty cash log for every transaction, including receipts.

Establish a starting dollar balance for the unearned revenue fund. This should be small enough that employees won’t be tempted to steal it but large enough that you don’t have to replenish it too often. Pick a dollar amount you think will cover small office expenses for a month or so. A petty cash fund between $100 and $500 is sufficient for many small businesses.

Account Type – From the dropdown, select Bank as the account type for a petty cash account. Assign one person to be in charge of petty cash, known as the petty cash custodian.

Though not literally cash, it’s money that can be easily and quickly accessed, which is why it’s “on hand.” The difference in this example of 10, has been written off to sundry expenses. The cash replenishment of 75 is now added to the current cash held of 25 thereby restoring the petty cash fund back to the original fixed amount of 100. This journal effectively transfers the amount of 100 from the cash account to the petty cash account. It is important to note that having established the imprest fund of 100, providing the amount of the imprest fund is not altered, no further postings are made to the petty cash account in the general ledger.

Cash payments to each individual research subject shall not exceed $150 per visit. If a payment to a single research subject of more than $150 is required, you cannot use petty cash and must submit a Check Request for payment to the subject to Accounts Payable. Petty cash book is a type of cash book that is used to record minor regular expenditures such as office teas, bus fares, fuel, newspapers, cleaning, pins, and causal labor etc.

Setting Up Your Petty Cash Fund

A journal entry is a physical record or a digital document that reflects all the financial transactions of a company. It can be recorded in the company’s general ledger or in a subsidiary ledger.

Set up the petty cash custodian as a Petty Cash Custodian Vendor Type . Allows you to use payment reason “Petty Cash Custodian Replenishment,” which has more object codes available than the “Reimbursement of Out-of-Pocket Expenses” payment reason. Oversight of petty cash is important because of the potential for abuse. Examples of petty cash controls include a limit (such as 10% of the total fund) on disbursements and monthly audits by someone other than the custodian.

  • Petty cash may only be used for payments to Human Research Subjects and related expenditures only from funds set up specifically for that purpose and for which confidentiality is essential.
  • The difference in this example of 10, has been written off to sundry expenses.
  • The University’s Certificate of Exemption number from the State of Rhode Island is #41.
  • A petty cashier might be assigned to issue the check to fund the petty cash drawer and make the appropriate accounting entries.
  • To use petty cash, simply grab however much cash you need from the lockbox (say, $10).

There are prepaid business credit cards that allow you to determine your spending limits based on the amount you load on the card. In addition, you can apply for a small business credit card and your credit limit will be determined by your business credit score. The petty cash custodian then disburses petty cash from the fund in exchange for receipts related to whatever the expenditure may be. There is no journal entry at this point; instead, the cash balance in the petty cash fund continues to decline, while the number of receipts continues to increase.

Terminating A Petty Cash Or Change Fund

The new custodian will also need to be set up as a vendor in KFS. Complete an account edit in KFS to close the petty cash/cash drawer account. If there are receipts that need to be credited against the account, prepare a Distribution of Income and Expense e-doc, and attach the receipts as backup.

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. At the end of the reporting period or when the petty cash log is filled up, the custodian in charge of the cash will count the money and compare to the ending balance on the form.

petty cash

The periodicity of withdrawal from a bank may differ from organization to organization as per their requirement. A small shopkeeper needs more cash rather than middle or big size organization as he needs to deal more with the unorganized sector who deals in cash only. In almost every organization, petty cash is an integral part of the accounting function and mostly taken care of by accounts personal only.

Keep Track Of Petty Cash Transactions

The petty cash custodian refills the petty cash drawer or box, which should now contain the original amount of cash that was designated for the fund. The cashier creates a journal entry to record the petty cash receipts.

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. Petty cash is useful for businesses to keep on hand whether they are just one-person proprietorships, such as a financial advisor, or all the way up to a small business with multiple divisions. Every purchase using petty cash must be documented in the same way as other business income and expenses.

Thus, using a petty cash fund avoids the need for making many entries for small amounts. Only when the fund is reimbursed, or when the end of the accounting period arrives, does the firm make an entry in the journal. Keep petty cash funds in a secure area such as a locked drawer or small safe.Ensure segregation of duties. Business units should evaluate their business needs and limit the petty cash account to the lowest amount that will meet those needs. Petty cash funds are small amounts of cash that businesses use to pay for low-cost expenses, like postage stamps or donuts for a meeting.

When your petty cash cashier puts money into the petty cash fund, they must create a journal entry in your books. The entry must show an increase in your Petty Cash account and a decrease in your Cash account. To show this, debit your Petty Cash account and credit your Cash account. Lastly, you should choose a maximum amount that employees can request for petty cash transactions. If the employee needs to spend more than the petty cash request limit, they can use the business credit card. A petty cash fund gives a small business the flexibility of quickly reimbursing or paying small expenditures without having to write a company check or use a company credit card. An employee can run out to the post office, not knowing the exact amount of postage needed on an item for the mail, and take petty cash with them to pay for the expenditure.

No matter what, ensure anyone with that title and responsibility is trustworthy and loyal to the company. Having a small amount of cash in your office or at the store makes it much easier for office managers, bookkeepers, and supervisors to cover small expenses. Best policy – From the above three policies, float up is mostly used and appreciated by accountants across the globe as it provides flexibility as well as control both over the cash transaction. If cash balance becomes very low, then it is replenished via cheque. ParticularsDebitCreditTotal Disbursement A/c Dr.XXXXTo Petty Cash A/cXXXXNarrations shall contain the total cash payment break up. Sage 50cloud is a feature-rich accounting platform with tools for sales tracking, reporting, invoicing and payment processing and vendor, customer and employee management.

Policy Statement

Once approval is submitted todecreaseyour petty cash/cash drawer, complete an Advanced Deposit e-doc and deposit the cash on hand. Every once in a while, compare the petty cash balance recorded in your petty cash log with the actual remaining amount of cash in your lockbox. If the numbers don’t match, that means something went wrong, and you need to review each expense for any discrepancies. The cash allocated for petty expenditures for a specific period is entered on the credit side of general cash book and on the debit side of petty cash book. Whenever a voucher is completed, the custodian should immediately update the petty cash book by adding the amount, type, and date of the expenditure and updating the running cash balance.

It saves the hassle of reimbursing people or expecting them to pay out-of-pocket for work-related items.

The purpose of a petty cash fund is to provide cash to business units sufficient to cover minor expenditures. The use of petty cash funds should be limited to reimbursement of staff members and visitors for small expenses, generally not to exceed $50, such as taxi fares, postage, office supplies, etc. Wherever possible, local units should use the PCard instead of petty cash. The most common way of accounting for petty cash expenditures is to use the imprest system. The initial fund would be created by issuing a cheque for the desired amount.


In closely held companies, where the owners directly involved in day to day business uses this approach, whereas they dictate the method of withdrawing the amount from the bank. No formal policy is in place to withdraw the amount and no limit over the possession of the cash. Further, there is no formal policy over cash, too, as the same is carefully looked over by the owners of the organization. For example, you don’t want to use petty cash for high priced expenses, so it can help to set a dollar limit, such as $25.00. Anything over that amount would be paid for or reimbursed using other means.

Administering Petty Cash And Cash Drawer Accounts

Enter “Petty Cash Replenishment-Voucher Number” as the email subject line. Check requests are processed by Supply Chain Management Accounts Payable and may require additional processing time. To inquire about payment status, contact Accounts Payable by creating a ticket with the SCM Response Team. Must show the total amount requested or the sum of the fund increase. Many small businesses don’t have a formal system for petty cash—owners will simply pay out of pocket for small expenses and hope nothing goes wrong. We are the intermediary between your asset and your project.

On the DV, use payment reason “K” payble to the custodian of the petty cash account using vendor type Petty Cash Custodian. Used to replenish the cash in the petty cash account.This account is not changed unless there is a change in the value of the petty cash/cash drawer. At the completion of each sales day, the cash drawer needs to reconcile.

For example, employees cannot use bookkeeping to buy themselves coffee. There are times when a custodian might make errors when handling the fund or receive incorrect amounts back from the requester or the employees who use the money. These errors cause the cash in the fund to be more or less than what the amount of the fund should be. When the fund is replenished, the amount to be credited to the fund is the difference between the actual cash in the fund and the established amount.

Author: Stephen L Nelson