While all this may sound like too much work to maintain such as small pot of money, the petty cash expenses are typically tax deductible just like any other business expense–and they can add up. Notice that the Petty Cash general ledger account is typically not impacted by the expenses because the only entry to the Petty Cash account occurs when the fund is established/closed or increase/decreased. Sometimes, especially in very small companies, the stack of petty cash vouchers serves as a log and the transaction details are entered into the bookkeeping system directly from the vouchers themselves.

Balancing the petty cash account usually occurs when the fund needs to be replenished. The petty cash custodian brings all the slips or vouchers to the business’ bookkeeper, cashier, or accountant. The petty cash receipts are logged into the company’s General Ledger as credits to the petty cash account, and probably debits to several different expense accounts.

By assigning the responsibility for the fund to one individual, the company has internal control over the cash in the fund. Many of your business expenses are tax deductible, including purchases made with your petty cash fund. For petty cash reconciliation, subtract the amount in your petty cash fund from the amount stated in your books. Compare this amount to the total amount listed on your receipts to determine if your accounts are equal. Lastly, you should choose a maximum amount that employees can request for petty cash transactions. If the employee needs to spend more than the petty cash request limit, they can use the business credit card.

To begin, have a secure place to store your petty cash funds, such as a lockbox or locked drawer. On the other hand, companies must also account for any receipts in the petty cash account. As stated above, the most common source for these transactions involves the bank account. If payment is eligible under this account, companies can record the transaction.

Demonstration of Typical Petty Cash Journal Entries

This allows separation of cash and petty cash accounts to make these funds easier to track and to replenish petty cash. The journal entry for this action involves debits to appropriate expense accounts as represented by the receipts, and a credit to Cash for the amount of the replenishment. Notice that the Petty Cash account is not impacted — it was originally the ultimate guide to creating an employee handbook established as a base amount, and its balance has not been changed by virtue of this activity. In short, petty cash is “shoebox money” for business expenses that are too small for using a company credit card or writing a check. However, it should be replenished at the end of the accounting period in order to ensure that all expenses are properly recorded.

• Once the replenishment check is cashed, the custodian adds the top-up money to the remaining currency and coins left over in petty cash box so that the original float level is restored.
• Finally, surprise petty cash counts should be made to maintain good internal control over the fund.
• In all cases, the amount of the purchase using petty cash would be considered to not be material in nature.
• Create a sample memo for petty cash so that people make sure to record the right information for each petty cash transactions.
• By assigning the responsibility for the fund to one individual, the company has internal control over the cash in the fund.

Create a petty cash log that details what was purchased, the amount of the purchase, the date it was purchased, the account affected (e.g., Office Supplies account), and which employee received the funds. Like any other type of transaction, you must record petty cash transactions in your small business accounting books. Petty cash funds typically depend on how frequently your business makes small purchases. For example, you might send an employee to pick up office supplies, like staples or printer paper.

You (or your petty cash cashier) must also create journal entries showing what petty cash funds go toward. When the petty cash fund gets too low, you must refill it to its set amount. Then, create another journal entry debiting the Petty Cash account and crediting the Cash account. To improve the way you handle petty cash accounting, require a petty cash receipt for each transaction.

Petty Cash vs. Cash on Hand

The petty cash fund must be requested by the individual, known as a custodian. The custodian is the individual responsible for safeguarding, disbursing from, and requesting replenishment of a petty cash fund. The custodian must be a university employee with a 50% or greater appointment or affiliate fiscal staff and must be authorized by his or her department head and by CCO. In general, departments are strongly encouraged to use Stanford Purchasing Cards or to request reimbursement through the Expense Requests system rather than use petty cash, whenever possible. In some cases, you may wish to avoid using cash for transactions whenever possible.

Petty Cash Log

The greatest degree of internal control can be maintained when a petty cash fund under the control of one individual is established to handle these expenditures. Commercial transactions are increasingly cashless—even at small retailers and restaurants, where purchases traditionally have relied heavily on coins. 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 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.

What Is an Example of Petty Cash?

And, create a petty cash slip indicating the amount, employee’s name, and date when you give employees 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. A designated employee, the petty cash custodian, accounts for your business’s use of petty cash. When an employee takes money from the petty cash fund, the petty cash custodian must record who took the money, the amount taken, what the money is for, and the date. Before establishing a petty cash fund at your small business, be prepared to create a petty cash accounting system. Heather needs a $315 reimbursement to bring the petty cash balance back to $500.

a. When Petty Cash May be Used

Splitting one transaction in excess of $100 into several parts, or requesting reimbursement of less than the full amount of the expense is specifically not allowed. Change Funds may be established by a department, used to give change to customers when they are paying for goods and/or services, and must be reconciled daily. The size of a Change Fund will be determined by the business needs of the requesting department. A written request with the details of the business needs must be submitted to and approved by the Office of the Treasurer.

Your postage machine just stopped working, and you need to send one of your employees to the post office fast to get some stamps. The only problem is she has no cash and her credit card is maxed out. CCO will return an approved copy of the PCCF form to the custodian, and submit the original PCCF and PA to the PSC for processing. The PSC then sends a check to the custodian at the departmental address listed on the Payment Authorization. The custodian may cash the check at the Office of Cash Management (OCM) cashier’s window in Regent Hall. Reimbursement for petty cash must be for the exact amount of the expense.

If you don’t document your petty cash purchases, you will not be able to deduct the expenses when you pay business taxes. After collecting receipts from your employees, update your books to show the used petty cash. You must debit your Postage, Meals and Entertainment, and Office Supplies accounts and credit your Petty Cash account.