At the end of July, in the petty cash box there should be a receipt for the postage stamp purchase, a receipt for the milk, a receipt for the window cleaner, and the remaining cash. The employee in charge of the petty cash box should sign each receipt when the purchase is made. The total amount of purchases from the receipts ($45), plus the remaining cash in the box should total $75. As the receipts are reviewed, the box must be replenished for what was spent during the month. The journal entry to replenish the petty cash account will be as follows. As this petty cash fund is established, the account titled “Petty Cash” is created; this is an asset on the balance sheet of many small businesses.

1. Once the account is reconciled, you’re ready to record your expenses into your general ledger.
2. A petty cashier might be assigned to issue the check to fund the petty cash drawer and make the appropriate accounting entries.
3. Petty cash or a petty cash fund is a small amount of money available for paying small expenses without writing a check.
4. For example, the Galaxy’s Best Yogurt maintains a petty cash box with a stated balance of $75 at all times.
5. With just a couple of clicks, users can quickly fill in some forms and receive approval in a matter of seconds.

At the end of agreed period, the petty cashier submits the details of all expenditures incurred by him to the chief cashier. The total cash spent by the petty cashier during the period is reimbursed to him and the total cash available to spend at the start of the next period becomes equal to the original sum (i.e., float). At any time, the total of petty cash balance and all expenditures that have not been reimbursed to the petty cashier is equal to the agreed float. To set up a petty cash fund, the cashier creates a check in the amount of the funding assigned to a particular petty cash fund (usually a few hundred dollars). Alternatively, the cashier could simply count out the cash for the petty cash fund, if there are enough bills and coins on the premises. The initial petty cash journal entry is a debit to the petty cash account and a credit to the cash account.

Obviously, companies don’t want lots of cash just sitting around in the office. The amounts vary between companies but may be anywhere from $50 to $500. This amount is usually spent over a period of a month or two, and is replenished when necessary. The balance in the petty cash account is now $300, which is where it was originally authorized to be. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. For additional security, you can require the custodian to keep a log of who refunds are given to.

Use Technology To Use Petty Cash Properly

An amount of $100 would typically be sufficient for most small business needs as the expenses to be covered are for small amounts. The bookkeeping entry for this initial fund would be to credit Petty Cash and debit bank account. This cheque would then be cashed to acquire the actual cash needed for payments.

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 the fund runs low, the custodian takes the receipts and vouchers to the accounting department and swaps https://simple-accounting.org/ them for a replacement amount of bills and coins. This cash replacement brings the total amount of cash in the fund back up to the originally authorized amount of cash. Petty cash is a small amount of cash that is used to make incidental cash purchases and reimbursements, such as for delivered meals. Petty cash can mitigate the effects of the more cumbersome accounts payable process, which involves the issuance of a check.

The journal entry for giving the custodian more cash is a debit to the petty cash fund and a credit to cash. The petty cash fund is reconciled periodically to verify that the balance of the fund is correct. Typically, as the petty cash balance falls to a preset level, the custodian applies for additional cash from the cashier. At this time, the total of all of the receipts is calculated to ensure that it matches the disbursed funds from the petty cash drawer. If new funds are needed, the cashier writes a new check to fund the petty cash drawer and takes, in exchange, the receipts from the purchases that depleted the cash. Petty cash is a small amount of cash that companies keep on hand for minor expenses, such as office supplies or meal reimbursements.

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In this case, the cash account, which includes checking accounts, is decreased, while the funds are moved to the petty cash account. One asset is increasing, while another asset is decreasing by the same account. Since the petty cash account is an imprest account, this balance will never change and will remain on the balance sheet at $75, unless management elects to change the petty cash balance.

Making Disbursements From the Fund

The custodian would use the $176 to restore the amount of cash to $200. The size of the fund depends on the company’s needs, but it should be large enough to last at least three to four weeks. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License .

The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. The security aspect is often important to small companies, who have long feared that keeping cash around is an invitation to crime.

Increasingly, these slips are electronic ones, entered in a digital spreadsheet or ledger. But it can be helpful to keep paper slips too, along with receipts from the purchases or payments (if possible). An accountant will typically write a cheque to “Petty Cash” to fund the petty cash account and cash this cheque at the company’s bank. If you’re looking to manage your petty cash fund well; it will take time and effort. With QuickBooks’ cloud accounting software, you’ll not only be able to access your financial information on the go, but you’ll also be able to save time and cost and ensure data security.

The petty cash log is one of the most important components of managing petty cash. Any transactions made into or out of petty cash need to be recorded on the petty cash log. It’s also important that any money disbursed out of the petty cash fund have a receipt.

What Is Required To Use Petty Cash

This is the only amount of cash that is not immediately deposited in the bank account after it is received. Since companies have to safeguard cash from theft and fraud, internal controls in place to make sure employees and other people can’t steal it. The most basic internal controls involve removing cash from the business premises. For example, two internal controls are all cash must be deposited in the bank account the same day it is received and all disbursements must be made by check instead of cash. As cash is spent from a petty cash fund, it is replaced with a receipt of the purchase.

Instead, petty cash payments are quick and easy, where the petty cash custodian merely has to hand over a small amount of cash to complete a payment transaction. If a petty cash account is consistently short, this may be a warning sign that there is not a proper control of the account, and management may want to consider additional controls to better monitor petty cash. Jane stops to pick up the best guide to bookkeeping for nonprofits two boxes of donuts, leaving her with $5 in her wallet. Fortunately, her office has a petty cash fund, which her boss immediately reimburses her from, so Jane doesn’t have to submit an expense report and wait for weeks to be reimbursed. If an employee has to buy something on their own for business purposes, they will usually be reimbursed in compensation out of the company’s petty cash fund.