This leaves the accounting team having to become detectives to figure out what happened to the petty cash’s float. 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.
- Cash on hand refers to all the money you have in your safe and in bank accounts, including the actual bills and coins you have in your petty cash fund.
- While petty cash is a relatively small amount of money, it can be easily stolen or abused if you don’t handle it right.
- In our example above, we asked for $315 as replenishment because it’s the amount of total receipts.
- The term “cash on hand” refers to all the liquid assets a business has.
Every month, or as cash is needed, the custodian should summarize the petty cash log by expense account and record a journal entry debiting each expense and crediting petty cash. If you’re running a proper log as mentioned above, you’ll also be able to easily gather up your petty cash vouchers and cross-reference them with your books to ensure things are accurate. This will set you up for success, not a petty cash accounting nightmare. 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.
When the fund is replenished, the credit to Cash is for the difference between the established amount and the actual cash in the fund. Any discrepancy should be debited or credited to an account called Cash Over and Short. The Cash Over and Short account can be either an expense (short) or a revenue (over), depending on whether it has a debit or credit balance. Most people use petty cash for things like buying office supplies, paying for postage, and so on. 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.
Do: require employees to account for expenses
Notice that the appropriate expense accounts are debited and that cash is credited. There is no need to make an entry to the petty cash account because it still shows a balance of $100. Next, let’s assume that there is only $20.00 in cash remaining and Mary realizes that $20 is not sufficient.
- Only the custodian can access the lockbox—and it mustn’t be left opened and unattended.
- One way to control cash is for an organization to require that all payments be made by check.
- Give the receipt to your finance department or the person who handles your small business books.
- Replenishment is required periodically, as cash payments from the petty cash box are used to pay for incidental expenses.
- Mary is the petty cash custodian who is the only person handling the petty cash transactions.
For example, if there are un-reimbursed expenditures from petty cash at the end of the year, expenses are understated and cash overstated. Finally, surprise petty cash counts should be made to maintain good internal control over the fund. Another entry to petty cash is not made unless the firm wants to increase or decrease the fund above or below $100. A petty cash fund is a small fund whose purpose is to make small disbursements of cash. Based on the information above, fill out the fields to record the expense. Go back to the Chart of Accounts screen and look for Petty Cash Account.
In your log, record the change in the debit column and enter the amount spent in the balance column. On the next line, subtract the balance amount from the opening balance to keep a running total of the section 338 business sale amount in petty cash. Small payments are often needed for postage, delivery charges, office supplies, or entertainment expenses. A petty cash fund provides an efficient way of handling these payments.
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. Company petty cash can be a great boon to businesses, large and small.
As the next step in the petty cash replenishment process, record the receipt amounts as debits to the accounts you selected. If your petty cash was short or over, debit shortfalls (expense) and credit overages (revenue) to the cash short and over account, reports Accounting Tools. Offset the total with a credit to cash to write your next petty cash check.
Petty Cash Journal Entries
As the petty cash total declines, the receipts should increase and add up to the total amount withdrawn. You typically evaluate your petty cash fund at the end of each month for more accurate balances. Remember to record petty cash expenses in your accounts as journal entries. 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.
Access Expense Requests
Get up and running with free payroll setup, and enjoy free expert support. To accomplish the reimbursement, the treasurer’s office provides the requested amount (by check or currency) to the custodian. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.
Complete Transaction Lines
If the petty cash fund is over, a credit is entered to represent a gain. If the petty cash fund is short, a debit is entered to represent a loss. The over or short account is used to force-balance the fund upon reconciliation. Your petty cash custodian should be the only employee distributing petty cash.
Reconcile a Petty Cash Fund
The cash and receipts should equal the opening value in petty cash. If the difference is still there, do not panic; it is common for petty cash to be off by a couple of dollars or less. As Accounting Coach reports, a replenishment threshold is the balance at which you will write a check to petty cash restoring it to the opening balance amount.
Small businesses handle small expenses like this by using a petty cash fund. It is important to realize that the $80 check will be credited to Cash (the company’s checking account). There is no entry to the Petty Cash account when merely replenishing the petty cash. When it’s time to record expenses, such as the end of the month, go back to the Petty Cash Register and click Add Expense. You need to create an expense entry for each receipt that you’re recording from the lockbox. At the time the entry is made, the custodian will receive a $315 check that’s cashed and the money placed in the lockbox.
The journal entry is debiting expense $ 400 and credit petty cash $ 400. The first journal entry is debiting expense (small expense) and credit petty cash. Petty cash is a highly liquid asset, which means that it’s easily stolen.
How to Endorse a Check as a Small Business Owner
One asset is increasing, while another asset is decreasing by the same account. Since the petty cash account is an imprest account, this balance will never change and will remain on the balance sheet at $75, unless management elects to change the petty cash balance. To permit these cash disbursements and still maintain adequate control over cash, companies frequently establish a petty cash fund of a round figure such as $100 or $500. The petty cash account is a current asset and will have a normal debit balance (debit to increase and credit to decrease).