What Is Petty Cash Management?

While you are innovating to produce safe, reliable, and sustainable products and services, our solutions help accounting teams save time, reduce risk, and create capacity to support your organization’s strategic objectives. 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. Once you’ve entered your petty cash transactions on the books, your bookkeeping can use them while creating financial statements—so you can accurately factor petty cash into your expenses. Notice how the far right-hand row lists the current balance of the petty cash fund?

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. 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 petty cash is used for a business expense, the appropriate expense account, for example office supplies or employee reimbursement, should be expensed. When the cash balance in the petty cash fund drops to a sufficiently minimal level, the petty cash custodian applies for more cash from the cashier. This takes the form of a summarization of all the receipts that the custodian has accumulated.

Examples of petty cash

This lets you reconcile—that’s fancy accounting speak for “double check”—your petty cash fund on the fly. Small businesses will often record all disbursements in a log and put one person in charge of petty cash to make sure none of the funds go missing. Petty cash funds must have an approved custodian, who documents expenditures, keeps receipts, and safeguards the funds. Wherever possible, local units should use other disbursement methods (such as PCards) instead of petty cash. There are many ways an organization can enhance the management of its petty cash fund to address some of the pitfalls and challenges of a traditional, paper-based approach. Safeguarding the petty cash, segregating duties, and reconciling monthly are all critical internal controls for petty cash management.

Each year, the Cashier’s Office is required to certify Petty Cash Funds; a process of verification to confirm the amount issued to departments is physically on hand or is accounted for through unreimbursed expenses. Read this guide to learn about the process automation options that are available to you, and how to use them to improve your finance and accounting operations. The records of petty cash disbursements should also be kept by someone other than the custodian or anyone else who has access to the fund, for proper segregation of duties and to avoid misappropriation of the cash. Global and regional advisory and consulting firms bring deep finance domain expertise, process transformation leadership, and shared passion for customer value creation to our joint customers. Our consulting partners help guide large enterprise and midsize organizations undergoing digital transformation by maximizing and accelerating value from BlackLine’s solutions.

petty cash

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. This is a credit to the petty cash account, and probably debits to several different expense accounts, such as the office supplies account (depending upon what was purchased with the cash). The balance in the petty cash account should now be the same as the amount at which it started. When a petty cash fund is in use, petty cash transactions are still recorded on financial statements.

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About Petty Cash Accounts

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Automate invoice processing to reduce manual invoicing costs, maintain compliance with e-invoicing regulations, and increase efficiency across your invoice-to-pay process. The security aspect is often important to small companies, who have long feared that keeping cash around is an invitation to crime.

Policy Last Reviewed

You must document all of your petty cash expenses if you want to write them off on your taxes, just like you would any other income or expense. That depends on how many small expenses you make and how often you make them, but most businesses seem fine carrying between $100 and $200 in petty cash. When cash overages and shortages are determined, a letter of explanation should be provided to the Cashier’s Office by the fund custodian. The Cashier’s Office will then fund or deposit an offsetting entry to the department Fund/Organization and offset to account code 8280 – Cash Over/Shorts.

To sustain timely performance of daily activities, banking and financial services organizations are turning to modern accounting and finance practices. Petty cash is a small amount of actual cash that a company has on hand to purchase items that cost so little that cutting a check doesn’t make sense or isn’t realistic. It is often used to reimburse employees for relatively low cost purchases, such as a birthday cake for an employee or breakfast treats for the morning staff meeting. 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. 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.

In larger corporations, each department might have its own petty cash fund. 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. This is the first entry in your petty cash account, represented by the following journal entry that shows petty cash leaving your bank account. For slightly larger small businesses, this might be your office administrator.

Secure the Funds

All reimbursements requests for any amount will be submitted through e-Expense (Apptricity). These examples are programmatically compiled from various online sources to illustrate current usage of the word ‘petty cash.’ Any opinions expressed in the examples do not represent those of Merriam-Webster or its editors. Stay up to date on the latest corporate and high-level product developments at BlackLine. Every executive is committed to ensuring transformational success for every customer. Go beyond with end-to-end transformation.Powerful technology is only part of the story. Successful transformation requires expert guidance from a trusted partner.

If receipts accompany your closing, you must submit a completed petty cash voucher (PDF, Download of Adobe® Reader® required). Software also provides standardized templates to ensure that petty cash funds are managed consistently across the organization. A centralized repository of all your documentation allows for an easy audit of these records by internal auditors. For proper administration and accounting of the petty cash account, the custodian should maintain a log of all disbursements. The log will allow for proper reconciliation of the account at the end of the reporting period when financial statements are prepared. In reality, the balance in the petty cash account is higher than the amount of cash actually in the petty cash box, since the cash in the box is continually being paid out.

Petty Cash Refund Slip The Petty Cash Refund Slip is used to document each disbursement of cash from a Petty Cash Fund for minor out-of-pocket business expenses. In addition to a log, your company’s policies should include a requirement for receipts to be provided for every purchase. These will provide detailed vendor or cash register receipts, which itemize the item or service purchased, the date, and the amount. Not surprisingly, petty cash funds are vulnerable to misuse and could even lead to outright fraud. Our solutions complement SAP software as part of an end-to-end offering for Finance & Accounting.

Transform your accounts receivable processes with intelligent AR automation that delivers value across your business. The reconciliation process ensures that the fund’s remaining balance equals the difference between the original balance minus charges detailed on receipts and invoices. If the remaining balance is less than what it should be, there is a shortage.

• If the petty cash fund is over, a credit is entered to represent a gain.
• The level of sophistication for tracking petty cash spending is usually in line with other company procedures.
• It works well to cover small impromptu expenses—like a tip for the kid delivering pizzas to the lunch meeting, or cab fare home for employees working late.
• Standardize, accelerate, and centrally manage accounting processes – from month-end close tasks to PBC checklists – with hierarchical task lists, role-based workflows, and real-time dashboards.

If the remaining balance is more than what it should be, there is an overage. Although there can be minor variances, when unbalanced, the source of the discrepancy should be identified and corrected. The custodial duties generally include enforcing petty cash rules and regulations, requesting replenishments, and dispensing funds. It might seem tedious to log every tiny expense in this way, but there’s nothing petty about petty cash expenses.

Let’s say that at the end of the month, you have $49.15 remaining in your cash box, and you want to top your petty cash fund by $150.85 to get it back up to $200. To use petty cash, simply grab however much cash you need from the lockbox (say, $10). When you return from Staples, deposit the receipt for the pens along with any remaining change (let’s say it’s $3.67 in this case) back into the lockbox, and make a corresponding entry in the petty cash log. If the amount what is balancing off accounts of cash in the lockbox ever doesn’t match the amount recorded in the balance column, that means someone made an error recording information into the log, or that some of the petty cash has gone missing. 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. It sure would be nice to have some spare cash around to pay for these small business expenses, wouldn’t it?