If the custodian finds that the petty cash fund is too small-this is the case if the fund needs replenishing every few days-then he or she may increase the float. When the check is cashed, the funds will be added to petty cash so that its original level is restored. Every time your custodian disburses money, he or she will fill out a receipt so that at any point in time, the total of the money and receipts in the petty cash box will add up to the initial amount of the petty cash fund.Īs the balance remaining in the petty cash fund becomes too small to be of use, the custodian should tally and summarize the receipts and exchange them for a new check made out to cash to equal the total of the receipts.
For example, if you have decided on a petty cash fund for $100, your petty cash account book entry will show a debit of $100 to your petty cash fund and a credit of $100 to your bank account. Managing your petty cash funds begins as soon as the first check has been cashed to create the petty cash float. Tracking all of your petty cash expenses as part of your bookkeeping system ensures that all tax-deductible expenses are captured.
#EXAMPLES OF RECORDIT HOW TO#
How to Manage Petty Cash FundsĮven though the expenses running through your petty cash funds are small, they will still need to be managed properly. Always make sure that the custodian replenishes the fund when it is getting low – making sure, of course, that you know where and how that money has been spent. Make sure that there is a reasonable amount of money in the petty cash fund and that it is enough to meet your company’s needs. It should be up to the custodian to decide whether each expense is appropriate based on your company’s petty cash policy. You don’t need to give every employee access to petty cash, and your petty cash custodian should be the only person permitted to disburse it. Typically, you will want to limit the number of individuals who have access to petty cash funds. It’s a good idea to specify what things petty cash can be used for the petty cash policy should be in writing, and available for review by your management team and your employees. When you are setting up a petty cash system for your business, you must establish clear and concise conditions so that the funds are not misappropriated. Establishing Internal Controls for Petty Cash Funds The receipt will also show the amount disbursed and what the fund is being used to purchase. When the custodian disburses money from the petty cash fund, he or she will write out a petty cash receipt which will be signed by the employee who is receiving the funds. Even though the petty cash account is small, it needs oversight. The custodian is responsible for keeping the petty cash funds in a safe place such as a lockable box only to be accessed when needed. You will also need to set up a petty cash account in the asset section of your financial reports. The amount you select for your petty cash fund must be sufficient to cover small expenses over a designated period, usually one month. Larger companies often have a petty cash fund for each department. You can set up your petty cash float – the maximum, fixed amount of on-hand cash – by cashing a check, usually ranging from $100 to $500 depending on the size of your business. By giving this responsibility to one custodian, it means that you will retain internal control over the money. The custodian will maintain and document all expenses from the petty cash. This person is known as the petty cash custodian. Typically, one employee is responsible for controlling petty cash funds.
Petty cash funds are small, but they do need to be managed properly. Pizza for the team working after-hours? Petty cash. Reimbursing an interview candidate who needed to pay for parking? Petty cash. Need some postage stamps? Go to the petty cash. That’s a long way of saying it’s “shoebox money” for expenses which are usually too small to bother using a credit card or writing a check. What is petty cash in accounting? Petty cash, also referred to as a petty cash fund, is a small amount of funds that are kept available for companies to use for small purchases which come up from time to time in the course of business operations.
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