On the other hand, there are some potential drawbacks to petty cash funds that business leaders should be aware of. First and foremost, it can be highly convenient to always have some cash available for minor purchases. These funds are easily accessible when the manager or an employee needs to make a small purchase without needing to go through a formal procurement, purchase request, or lengthy approval process. Petty cash is a small fund businesses use for minor purchases, but it requires careful tracking to prevent petty cash misuse. “Petty” refers to the small or insignificant nature of the expenses it covers. These are typically minor, everyday costs that don’t warrant more formal payment methods.
What are the drawbacks of manual branch petty cash management?
A few hours later, the HR team approaches Ananya to request funds for a surprise birthday cake for an employee celebrating their work anniversary. Raising a formal payment request for such a minor expense would be overkill, so petty cash comes to the rescue again. Ananya records the amount in the petty cash log, approves the purchase, and sends a team member to pick up the cake.
How do I set up a proper petty cash system?
The journal entry to fund petty cash would debit the account and credit to cash bank account. At the end of each period, the fund must be evaluated to see if there are enough funds for the future periods. If not, additional funds must be transferred from the normal business checking account.
Setting Up Your Petty Cash System
Due to these disadvantages, many businesses are shifting towards prepaid cards or expense management software to handle small transactions more securely and efficiently. Which can aid employers in reimbursing employees and clients for small expenses. Some examples may include snacks, transport fares, office supplies, etc. The best way to record these expenses is by collecting petty cash receipts. These receipts should match the replenishment of funds within the recorded periods. The amount of petty cash allowed within a company can vary, typically ranging from $50 to $500 depending on the size and needs of the business.
- To facilitate transparent reimbursement, attach the corresponding proof of purchase to the voucher post-expenditure.
- You’ll want to outline which expenses are approved for petty cash use and set clear limits on the amount that can be spent per transaction.
- Since purchases using the petty cash fund are small, it’s typical to see purchase limits of $50 or less with a total account balance of a few hundred dollars.
- And the amount of cash you have in your storage box or drawer should be the same as the current balance of the account.
Distinguishing Between Petty Cash and Cash on Hand
Regularly cross-verifying the recorded transactions with the physical cash and receipts will help unveil any discrepancies. It’s essential to address a shortage immediately, as it might indicate funds are less than expected, and similarly, an overage would imply excess funds. It’s also wise to enforce a mandatory rotation of custodians periodically to prevent complacency or potential fraud.
- Regular reconciliation and audits are critical for maintaining financial accuracy and preventing fraud.
- In this guide, we’ll cover what petty cash is, what it’s commonly used for, and best practices for proper management.
- First and foremost, it can be highly convenient to always have some cash available for minor purchases.
- This figure should be the same as the withdrawn sum you calculated from the account starting and ending balances.
- It’s perfect for on-the-spot purchases like restocking office supplies that have suddenly run out, or buying a sympathy card for a colleague who’s had a recent loss.
- This way, businesses can quickly handle these little costs without the need for writing checks or using credit cards.
Advantages of a petty cash fund
- This way, workers don’t need to pay for minor expenses out of pocket and wait to be reimbursed at a later date – they can just use money directly from the petty cash fund instead.
- Petty cash is a small fund businesses use for minor purchases, but it requires careful tracking to prevent petty cash misuse.
- Petty cash allows businesses to make minor purchases without providing a receipt through an expense reporting system, which can reduce the time spent bookkeeping for small items.
- Instead of using their business bank account or writing cheques for small purchases, a petty cash fund gives owners a convenient way to handle everyday business expenses.
- If you’re looking for an all-in-one solution for expense management where you can manage card payments, create budgets, and control spend, check out BILL Spend & Expense.
- Petty cash refers specifically to money—literally, coins and bills—that a company keeps on hand for small outlays, usually because using cash is easier than using a check or credit card.
The purpose of the fund is to have some cash on hand in case a small purchase needs to be made. The petty cash custodian pays out cash as requested in exchange for some form of evidence, such as a receipt or a voucher. The aggregate total of all remaining bills, coins, and evidence of receipt in the petty cash fund should always match the authorized amount of cash for that fund. Once the amount of bills and coins in petty cash the fund runs low, the custodian takes the receipts and vouchers to the accounting department and swaps them for a replacement amount of bills and coins.
Individual Tax Forms
She counts the remaining cash, matches it with the receipts and records, and prepares a report to submit to the finance department. The petty cash is then replenished to its original amount, ready to handle next week’s unforeseen expenses. Modern bookkeeping services go beyond basic record-keeping, offering CFO-level insights that help businesses improve cash flow, optimize expenses, and make data-driven financial decisions.
