Petty Cash Guidelines Business Office University of the Incarnate Word

The expenses will be recorded in the company’s general ledger expense accounts when the petty cash on hand is replenished. If there’s a shortage or overage, a journal line entry is recorded to an over/short account. 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. By having a petty cash cashier and a petty cash custodian, the dual-process helps to keep the funds secure and ensure that only those authorized have access to it. A petty cash fund can be used for office supplies, cards for customers, flowers, paying for a catered lunch for employees, or reimbursing employees for expenses.

Receipts for business travel (e.g., gas, taxi, hotel) made out-of-town (outside a 50-mile radius from San Antonio) must be approved by the Accounts Payable manager. Create a journal for the account and require that exact amounts used are entered. Whenever possible, local units should use the PCard instead of petty cash. Monthly – Total of all credits and debits to the account for the current month. Today – Total of all credits and debits to the account for today.

Go back to the Chart of Accounts screen and look for petty cash Account. On the far right of the column, click View Register to arrive at the petty cash register.

Overview: What is petty cash?

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. Even though the petty cash account is small, it needs oversight. 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.

• On the other hand, the custodian may find that the fund amount is excessive.
• In larger corporations, each department might have its own petty cash fund.
• To reconcile, you’ll need to match your receipts with the amounts recorded on the petty cash form.
• Notice that the petty cash account is debited or credited only when the fund is established or when the size of the fund is increased or decreased, not when the fund is replenished.
• All vouchers are kept with the petty cash fund until the fund is replenished, so the total amount of the vouchers and the remaining cash in the fund should always equal the amount assigned to the fund.

If you’re ready to set up a petty cash account for your business, we’ll guide you through the process. Petty cash, as the name suggests, is a small amount stored in office boxes or drawers to be used to pay for small expenses, including employee meals and snacks. It is the best mode of payment in situations in which paying by check seems an insensible option. Normally, such an amount that a company can spend on the daily expenditures varies between $50 and $500. The journal entries are made when the custodian receives new funds in exchange for the receipts. Petty cash is the cash amount used to settle small expenditures that companies make from time to time. As the cost of writing, signing, and processing the checks take a lot of time, companies prefer paying in cash on the spot for a smaller amount.

Require Receipts

Petty cash is an integral part of the accounting function in most organizations and is well taken care of by an appointed custodian. A petty amount a company can spend on the daily expenditures varies between $50-$500. Elon Musk making a play for Twitter out of his petty cash drawer is one more example of why the pooling of so much wealth in the hands of a few is a societal disease. Many businesses opt to use petty cash vouchers to keep track of their cash transactions. An imprest is an account businesses use to pay for small, routine expenses. A fixed balance is maintained in the account, and it is replenished routinely.

• In KFS, a distinction is made between Petty Cash accounts and Cash in Drawer accounts.
• Each time you tap into a petty cash fund—that is, take money out—a slip or voucher should be filled out.
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There are various scenarios where it makes more sense to use petty cash rather than reimbursing an employee through their paycheck. The petty cash account covers business-related expenses generally categorized as miscellaneous expenses. Business owners usually keep a small amount of cash in a safe or lockbox that they use to pay for unexpected items. While assigning a custodian to manage a petty cash fund increases accountability, it also has risks. The custodian should be a competent, trustworthy employee in the organization.

How to Use Petty Cash to Make Your Life Easier

All petty cash numbered slips must be signed, approved by Department Head, include the amount,reason for expenditure, date, and Fund, Organization, Account and Program numbers. Under no circumstances can petty cash be used for personal expenses or loans. The Department Head is ultimately responsible for the basic safety and control of the Cash fund, regardless of who actually handles the transactions, and reimbursements. The funds are secured and not deposited in a separate bank account. Purchases of goods and services for more than $100 should not be made with petty cash. Purchases over $100 should be made using other procurement methods such as the purchasing card. Petty Cash Fund Definition – A small cash fund used to make incidental purchases where normal purchasing methods are not practical.

• Maximize working capital with the only unified platform for collecting cash, providing credit, and understanding cash flow.
• You may only be reimbursed if your department does not have a petty cash fund.
• Void slips must be noted as Such, and the original yellow copy left in the receipt book.
• All petty cash requests for restricted accounts (ex. 2xxxx-xxxx-xxxx-xxxx) require approval by the Grants Accounting Office.

Ustodian who is authorized to replenish petty cash reimbursements on behalf of the petty cash custodian. Any exceptions to this rule must be approved in advance by Cashier Services. Please contact Cashier Services for questions or guidance on Alternate designation. The alternate does not have authorization to make any changes to the account.

The following accounts require additional approval before requesting petty cash

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. 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. Petty cash, also referred to as a petty cash fund, is a small amount of funds that are kept available… 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. Use of petty cash is sufficiently widespread that vouchers for use in reimbursement are available at any office supply store.

The sum of cash on hand and receipts for unreimbursed expenditures is equal to the amount which has been authorized. https://www.bookstime.com/ funds may not be deposited into personal bank accounts or commingled with other funds. You may only be reimbursed if your department does not have a petty cash fund. In KFS, a distinction is made between Petty Cash accounts and Cash in Drawer accounts. Prior to KFS, both petty cash and cash in drawer were considered petty cash. Within KFS, a petty cash account is represented by the balance of an object code within a KFS account. For a complete list of petty cash expenses & appropriate GL Accounts to use, please visit this link, GL-Descriptions for Petty Cash.

Cash Handling and Banking Services

If the voucher amounts do not equal the cash needed to replenish the fund, the difference is recorded in an account named cash over and short. This account is debited when there is a cash shortage and credited when there is a cash overage. Cash over and short appears on the income statement as a miscellaneous expense if the account has a debit balance or as a miscellaneous revenue if the account has a credit balance. In the journal entry below, the vouchers total $130 but the fund needs $135, so the entry includes a $5 debit to the cash over and short account.

Ensure services revenue has been accurately recorded and related payments are reflected properly on the balance sheet. Whatever you decide, it’s important that only one person have access to the fund at any time, to avoid unaccounted for withdrawals and/or theft.

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. Used to reduce the petty cash/cash drawer on hand.This account is not changed unless there is a change in the value of the petty cash/cash drawer. On the DV, use payment reason “Z”, and make payable to the custodian of the petty cash/cash drawer account. Once the request has been approved, the Petty Cash Officer will request a disbursement check made payable to the person listed as the Custodian on the request form. When the check is ready, the check will be mailed directly to the Custodian. The Custodian may then cash the check and hold the funds in a secure location, such as a drawer in a locked filing cabinet within the department. The department/unit is responsible for safeguarding the funds and replacing any missing funds, including stolen funds.

Increase accuracy and efficiency across your account reconciliation process and produce timely and accurate financial statements. Drive accuracy in the financial close by providing a streamlined method to substantiate your balance sheet. While a petty cash fund may not be necessary if you work solo, if you have even one employee, it may be worth it to set up a petty cash fund to manage those unexpected expenses properly. Your available cash should always match the amount recorded in your petty cash log. If it doesn’t, you’ll need to account for any cash over and short.

Advantages and Disadvantages of Petty Cash

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. Though the petty fund is available in cash and can be considered cash on hand, the cash on hand is not always petty cash. The time taken to encash a check makes companies prefer paying in cash for small expenses on the spot.

This cash should be counted daily and logged using the Cash Count Sheet. To avoid paying sales tax on any approved university purchases, present a Texas Sales and Use Tax Exemption Certification form to the merchant. 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. At the time the entry is made, the custodian will receive a $315 check that’s cashed and the money placed in the lockbox.

Step 3: Reimburse Receipts and Record Expense in the Petty Cash Log

Reconciliation is an accounting process that compares two sets of records to check that figures are correct, and can be used for personal or business reconciliations. However, on corporate financial statements, petty cash is listed in the “Cash and cash equivalents” section of the balance sheet.

Sign up to receive more well-researched small business articles and topics in your inbox, personalized for you. After we click the green Save button, the first entry should appear like in the image below. Click Accounting on the left-hand side menu and then choose Chart of accounts. Attach a copy of the Cash Receipt, log of expenditures, and other supporting documents to the Petty Cash Request Form.

Once the account is reconciled, you’re ready to record your expenses into your general ledger. If you have an office manager, they’re the most likely choice to manage the petty cash fund.