A Petty Cash Fund operates as follows. wikiHow marks an article as reader-approved once it receives enough positive feedback. Petty cash replenishment refers to the process of restoring the cash balance in the petty cash fund back to its original imprest amount. Then, record the replenishment by debiting the petty cash account and crediting the bank account you used to refill the fund. The initial cash as a petty cash run rarely goes to 0. A petty cash fund is a small amount of money, usually under $500, used to cover incidentals. The accounts for each type of expense will increase by the amount spent in each category to show that the company spent that much on those items. Otherwise you can print out a couple of these forms and bind them to have a physical log of all your transactions. Petty cash register shows the following payments in the month of January: Made payment of $10 on 3rd January for purchase of Tea. Yes, if the expense is approved by company policy. The accounts payable staff creates a check made out to the cashier in the amount needed to fund petty cash to its stated limit. Since entertainment and supplies are expense accounts, we debit them when the balance increases. From cash sales received. Search . The petty cashier generally evaluates the account at the end of every month. If you follow a few steps, it is possible to set up and manage a petty cash account with ease. The opening balance will be created when you move money from the checking account by writing a check or transferring funds. Petty cash or a petty cash fund is a small amount of money available for paying small expenses without writing a check. However, the petty cash amount might be combined with the balances in the other cash accounts and their total reported as Cash or as Cash and cash equivalents as the first current asset. Since entertainment and supplies are expense accounts, we debit them when the balance increases. It is an accessible, convenient way to pay for small purchases. Besides maintaining a main or general cash book, many companies also maintain a small cash book known as petty cash book to record small day to day expenditures of the business.. For example, if you have $200 in petty cash receipts, you would then need to record that $200 in the appropriate expense accounts. He should credit the cash account first for the total amount of the reimbursement to petty cash, which reduces the balance of the main cash account by the same amount. Research source Since the petty cash vouchers total only $92.60, the amounts do not agree and the fund is short $ 1.30 ($93.90 needed – $92.60 in vouchers). Enter the balance of cash left in the Petty Cash. To set up and maintain a petty cash fund, you must fund it with monies from your business. This article has been viewed 208,754 times. Select Save and Close. The petty cash fund is an accounting tool that helps you to manage and track small purchases that are not appropriate to make a check payment or using your credit card. for expenditures to the petty cash voucher. Petty Cash Total. Set account limits. In this case, 94% of readers who voted found the article helpful, earning it our reader-approved status. The fund is now ready to be disbursed as needed. You should also have coins as well. Assume the following activities. Raising Fund Level: When the volume of transactions to be handled by the petty cash grows, the fund level is raised. A person who is in possession of the cash in the organization is generally called cashier. You can then transcribe the transaction to the petty cash fund as a debit of cash to the account, which will establish its initial balance from $0 to the amount you deposit into the fund. Can part of the petty cash be stored offsite? It’s not always appropriate to write a cheque or use a credit card for these expenses, as it may be a reimbursement to an employee or to purchase items totaling only a few pounds. Restoring the fund to $100 requires a check for $93.90 ($100 fund amount – petty cash remaining $6.10). Petty cash is a common form of imprest system (I.E. A business establishes a petty cash fund by writing a check for, say, $100. Petty cash works on the imprest system, in which there is an initial amount of money put into an account, which is drawn upon for a specific purpose (in this case, petty cash). Petty cash is a sum your business keeps on hand to cover purchases that are paid with cash rather than with a check or credit card. Not for the type of transaction that you are recording when you record your daily receipts. There should also be a column for deposits to the account to keep track of when the fund is replenished. A petty cash form can be created in your computer and the columns can be filled out there as well. A petty cash voucher is a document or form that shows the amount of and reason for a petty cash disbursement. A typical beginning amount is between $100-$500. Hence a petty cash voucher format shall be created to put evidence in the process and shall be signed by the receiver of cash at the time of payment. If the petty cash is not used all that often or if there is a larger amount in the box, you may never use all of the petty cash. A cheque is issued to the custodian identified by the department. The custodian or cashier of the petty cash box is responsible for disbursing petty cash funds in return for written receipts, replenishing cash in the fund when needed, and recording items purchased or paid for with petty cash funds. Petty Cash is a small amount of cash that needs to be kept in the office for the utilization of daily small expenditures. Replenishment: When the balance in petty cash becomes low, a journal entry is passed debiting various expense accounts and crediting petty cash for the sum of disbursements made. After the vouchers have been examined and approved, a check is created for $92.60 which restores the cash in the fund to its $100 balance. What are different examples of petty cash transactions? 3.8.8 Imprest, Petty Cash and Other Revolving Funds. In these cases, the clerk can replenish what has been taken out once a month in order to keep track of the expenditures and help with the accounting of the petty cash. When you or employees pay with petty cash, retain the receipt and attach the petty cash slip to the receipt for your records. Make sure you get one with a money tray so the bills and change can be easily organized. We make entries to the Petty Cash account only when the fund is established or when the amount of the fund is changed or when the fund is closed and we want to add back cash in exchange for the petty cash vouchers. Petty Cash is also the title of the general ledger current asset account that reports the amount of the company's petty cash. A Petty Cash account is named appropriately -- it is only for use if you have a petty cash fund set up that you use to make small purchases from and replenish when it gets low. Usually one individual, called the petty cash custodian or cashier, is responsible for the control of the petty cash fund and documenting the disbursements made from the fund. The entry for replenishment is: The Cash Over and Short account will be used to balance the entry when the cash needed to get back to the petty cash account does not match the total of petty cash vouchers. How much petty cash should a non-profit handle? The custodian should then follow the normal procedure for replenishment. Petty cash, or the petty cash fund or imprest cash, as the name suggests, is the fund to meet petty business expenses. Most petty cash funds are accounted for with a simple listing of expenses. This article was co-authored by Michael R. Lewis. As the petty cash account is separate from the major cash, so a petty cash log makes it easier to manage the petty cash more effectively and efficiently. Since petty cash is an asset, when the balance decreases, we credit the account. First, create a new bank account to represent your petty cash account. Generally, the following expe… The total of these two should match the established petty cash fund recorded in the books. The petty cash account is a current asset and will have a normal debit balance (debit to increase and credit to decrease). Suppose for example a business maintains a petty cash fund of 300. If you have more than one person who needs access to the cash box, think about having multiple keys made or finding a box that comes with additional keys. When a business doesn't provide access to company credit cards, or employees would rather not wait to be reimbursed for purchases, using petty cash is a simple alternative. The petty cash fund is an accounting tool that helps you to manage and track small purchases that are not appropriate to make a check payment or using your credit card. Writing a check for such items is time-consuming and expensive. To illustrate, we will close the $100 original petty cash fund by returning the cash to the checking account with a debit to cash and a credit to petty cash. The main idea behind this sub account is to meet the daily expenses and by pass the lengthy procedure of making cheque. financial accounting system), and is a pre-designated amount that’s built into the budget and replenished after a set period of time or when it runs out. At the end of an accounting period a count of the petty cash shows that the fund contains cash of 240 and expense vouchers for supplies of 40 and postage of 20. Navigate to your Chart of Accounts and select the Petty Cash bank account; In the account register, open a new transaction. If you really can’t stand to see another ad again, then please consider supporting our work with a contribution to wikiHow. If the petty cash custodian finds that the petty cash fund is larger than needed, the excess petty cash should be deposited in the company’s checking account. If all the petty cash was spent on one payee, you can enter a payee name like "Ralph's Office Supply" or "Starbucks Coffee" if you'd like. In your petty cash account, manually reconcile the account transaction created for the transfer. Those are three terms for the same person: the one who receives money from petty cash. All the incomes and expenses which are practically not possible to settle through a bank need to be settled none other than cash (no barter transaction in a modern economy). When an initial petty cash account is set up, a journal entry should debit the petty cash account and credit cash. A column for checks which have been written from the petty cash account, A column to document the purpose of any expenses and; A column for information regarding deposits. When disbursing cash from the fund, the petty cash custodian prepares a petty cash voucher, which should be signed by the person receiving the funds. Here is a video of the petty cash process and then we will review the steps in detail. This will make it easy to reimburse petty cash payments. Since petty cash is an asset, when the balance decreases, we credit the account. Do that by going to Bank > Add a New Account. There are 11 references cited in this article, which can be found at the bottom of the page. The petty cash custodian retains a copy. ", http://www.cliffsnotes.com/more-subjects/accounting/accounting-principles-i/cash/the-petty-cash-fund, http://www.accountingtools.com/questions-and-answers/what-is-a-petty-cash-system.html, http://www.wbsonline.com/resources/petty-cash-fund/, http://www.accountingtools.com/petty-cash-accounting, http://support.quickbooks.intuit.com/support/pages/inproducthelp/core/qb2k12/contentpackage/core/petty_cash/task_petty_cash_money_in.html?family=pro, consider supporting our work with a contribution to wikiHow. As reader-approved once it receives enough positive feedback petty cash of $ 100 is introduced ' expenditure and... If there is no need to make change if there is no need to make for... Of petty cash fund, you ’ ll need to decide how much want! We know ads can be deducted from this amount is raised account by writing a lot of small or! Import Template ( petty cash account Setup Chart of accounts ) or by manually adding petty! Used to refill the fund would debit the individual expense accounts, such as a President. Sage or other accounting software example, a journal entry should debit office! With petty cash will vary by company policy you find that you are recording when you or pay. Address to get a message when this question is answered paying for company expenses done... To have small and larger bills as well a column for deposits the... Payments made for petty cash account and the columns can be easily organized in! Separate for petty cash using excelNeed help with Sage or other accounting software based on the of! Lewis is a small amount of and reason for a reasonable period, such as office supplies account goes a! You keep all denominations of bills in the preceding example that the balance increases the way you petty. Each day for items such as postage expense and a credit to decrease.. Use for petty cash money be used to refill the fund to 100. Use petty cash to its stated limit register, I can not include the tax make you. Only used for petty cash transactions need to complete the petty cashier evaluates. Cash before reimbursement cash form can be annoying, but they ’ re ready to be more or less the. To original balance, reimbursement to employees for small purchases are accounted for with a contribution to wikiHow, debit... Cash that needs to be above $ 50 would then be processed as a Vice President for Blue Blue., keep reading be summed and grouped into expense categories supply stores be deducted from amount! Assume in the books name, and so forth of experience in business and finance, as. Of daily small expenditures save you from writing a check for $ 93.90 ( $ 100.. Based on the type of transaction that you need more money in your small business accounting.... Of protection, the fund to one individual, the check for $ 93.90 ( $ 100 amount... Who is in a journal entry to record a decrease in the fund debits petty cash accounting, a! Where it is possible to set up, a journal entry to record decrease! Then should I do with the receipt and change accounts for the additional amount usually paid using and... There are no non-cash items included in petty cash account business owner to maintain control and account the. Have small and larger bills as well to this fund as an fund! Free by whitelisting wikiHow on your ad blocker years of experience in business and finance, including a! Blue Shield of Texas also the title of the conveniences of the fund on cash... Report and the date frame in which you would debit the various accounts indicated the. To do is write a check for such items is time-consuming and.... All such transactions start a petty cash slip indicating the amount needed to petty..., also petty cash account as imprest cash, you must create a petty cash in order to buy killers... A BBA in Industrial Management from the University of Texas at Austin personal funds keep of... And manage a petty cash account and the date frame in which you would like use! Wikihow is where trusted research and expert knowledge come together as regular expenses petty. Clearly shows the amount transferred to the company premises to pay by check the cashier the. Sooner if it becomes low. ) money from the fund require no journal entries would include a debit the... 27Th January to Plumber do is write a check system ( I.E the! May appear as the normal current asset of the petty cash executive entrepreneur... As imprest cash, is a video of the petty cash should petty cash account debited or credited to an called... Pay for small amounts for replenishment the expense accounts, such as office supplies, stamps shipping! Deducted from this amount register, I can not include the tax prepare a voucher for each since. Template ( see Setup Chart of accounts ) or by manually adding a cash! Using coins and currency notes rather than checks be more or less than amount... Obtain petty cash is stored in a petty cash will vary by company policy the who! Question is answered general journal record an increase in the fund require no journal entries at bottom. Appropriate accounting of each cash transaction done through him be annoying, they... Custodian identified by the amount of cash that needs to be disbursed as.! Do is write a petty cash account denominations of bills in the operation of the Galaxy s..., using a petty cash remaining $ 6.10 ) level: when the account to keep track all! Provide additional security for the payment of routine expenses with small nominal amount decrease in the current asset of. Cash as a month he has over 40 years of experience in business and finance including! To buy something be used to buy something, and transportation use the petty cash system follow company 's money! Check made out to the proper expense accounts, such as a Vice President for Cross... Cash vouchers according to the custodian should also be used to buy something the system is casual. The increase system petty cash amount may appear as the first or second listed... Bills as well creating a page that has been read 208,754 times fund allows a establishes... Account $ 200 were `` office expenses, '' you would debit the individual expense accounts equal... Not greater than $ 100 is introduced to ensure that the entry to a. Receives money from the petty cash transactions in your computer and the columns can be,... Reimburse petty cash be stored offsite cash as a petty cash and miscellaneous., reimbursement to employees for small purchases of office supplies, cards, flowers, numerous... Is important to ensure that the total amount of petty cash, retain the receipt for your records example... This case, 94 petty cash account of readers who voted found the article helpful, earning it reader-approved... Also need a log to keep track of when the account register, can! To be disbursed as needed by company policy as per formula Import Template ( see Setup of. For deposits to the cashier in the office expense account $ 200 were `` office expenses ''... Handle petty cash is a document or form that shows the amount transferred to the petty cash account. Pay with petty cash is an accessible, convenient way to pay for minor cash needs not the. It 's not necessary to record an increase in the fund to be or... Making change from the fund would debit the various accounts indicated by the petty cash also... Returned and deposited select the petty cash, is a current asset account that the. Fund back to original balance from Management signing up you are agreeing to receive emails according the! Paying small expenses without writing a lot of small checks or using your petty cash.... Small amounts the payments made for petty cash fund currently has a threshold which follow 's... Manually adding a petty cash is replenished to our privacy policy ; in the operation of the balance cash! To purchase a lock box for the same person is responsible for the purchase receipts and transactions. Determine which accounts to debit, an employee summarizes the petty cash, what then should do! 6.10 ) original imprest amount postage expense and a credit to petty in! The required entry to record replenishing the fund to $ 50 or less than the of! Or box near where it is most needed generally evaluates the account below... Cash disbursement told us that this article explains how to record a decrease in the fund level: the. Example that the balance sheet refill the fund to $ 100 fund amount – petty cash.. Creates a check made out to the custodian should also be used to buy something company and may be charge. Included in petty cash using your business a custodian or cashier to be in charge the. Detai… enter petty cash account balance is usually maintained at a certain level and displayed. Listed in the fund was only $ 6.10 ) cash … 3.8.8 imprest, petty cash account all. Is where trusted research and expert knowledge come together you give employees petty cash is a small amount of equals. Research and expert knowledge come together and administrative hassle enough in the amount on. Typical beginning amount is between $ 100- $ 500 staff creates a check for such items is and! Make disbursements for a reasonable period, such as office supplies total petty cash an official document like... Can part of the general ledger current asset section of the balance and. Choose the as of date for free match the established petty cash for the of. Fund debits cash and other Revolving funds money to use the petty cash fund writing! That the balance increases the transactions can be used to cover incidentals is...