What is a Petty Cash and How to Handle It?

27 января 2020 by Forex Broker simple-accounting.org

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When we speak about petty cash, we mean a small amount of money that is used in order to cover some expenses that are most expected. In different offices and organizations, petty cash may have a different numeric value. It depends mostly on the size of the organization. Usually, the minimal volume of petty cash is 100 dollars. Maximal volume is one thousand dollars or, sometimes, even more. In some small offices, there is a single petty cash account for the whole company. However, in big offices, each separate department has its petty cash account.

Definition of Petty Cash

Petty cash definition is quite simple. When the company is operating every day, daily purchases are made continuously. They are inevitable. The payments for these purchases are usually made from the petty cash fund. Among such purchases, there are the following ones: delivery, some supplies, food, and beverages for the staff. If the company has a petty cash fund, it allows the company to organize its business properly. This way, the staff don’t have to get a refund when a small sum of money is necessary urgently. This is the main benefit of petty cash. To account for petty cash, we use a petty-cash log. 

Examples of Petty Cash Payments

Usually, a petty cash fund is used to cover different expenses of the office. The use of the petty cash fund for the staff is limited, and members of the staff are not allowed to take personal loans from this kind of account. However, such loans can be possible if this possibility is stated in the labor agreement between the employee and the employers. 

What is Petty Cash Voucher?

When the responsible person issues cash, the voucher is formed according to the petty cash form. It is a special document that includes a day, the sum of money, and the type of expenses. The balance of the cash must completely correspond to the total value of these financial documents. 

Sometimes, during the replenishment of petty cash, the accountant can notice some non-correspondence. In this case, the accountant must reflect this non-correspondence in a special account “the lack of funds/the excess of funds.” In case of a debit balance in the account mentioned above up to the end of the given period, we must include it in the total sum of operational expenses. In case of a credit balance, it must be included in other sources of income. 

How to Start a Petty Cash Fund

The main requirement for petty cash accounting is that when creating a petty cash fund, you must coordinate it with your accounting department and get a check or cash. This qualifies as expenses on the company’s books. 

Although relatively small amounts pass through the petty cash register and, as it may seem, there is not much to profit from here, cash, especially small, is the most common object of theft because it is easier to do it with cash.

How to Replenish the Petty Cash Fund?

Perhaps the best way is an advanced system. First, it is determined how much money should go into the petty cash register and the face value of the bills. Then, as petty cash is spent during petty cash transactions, the amount must be replenished to the established ratio by exchanging larger bills.

Conclusion

Once a year, the company must review standard operating procedures, monitor and interview the overseer of petty funds and create control logs, for example, by looking at numbered small cash receipts to make sure there are no omissions and randomly selecting small payments and tracking them. Now, you can answer, “What is petty cash?” without hesitation.

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