What is Petty Cash? How to Manage it?

It is replenished up to the fixed amount that was originally designated for the petty cash fund. Jane stops to pick up 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. For larger companies, the entire process for applying and approval can be automated for better record keeping. The receipts are also maintained in the online form so ease of access and better reconciliation.

• With cash, it’s easy to feel like you say “abracadabra” and watch it simply disappear.
• When an expense is small like those, it’s not worth going through the usual lengthy request and approval process that takes an average of nine days to reimburse an employee.
• Reconciling petty cash should be simple enough if every petty cash deposit into the business bank account is the same amount every time.

Anyone who has ever run a small business knows that petty cash always plays an important role. There’s no doubt that most small business owners regularly have to deal with it. To know more about Happay and how to manage your branch petty cash more efficiently, schedule a demo with us today. Petty cash is useful for businesses to keep on hand whether they are just one-person proprietorships, such as a financial advisor, or all the way up to a small business with multiple divisions. Keeping proper financial records is time-intensive and small mistakes can be costly. BooksTime makes sure your numbers are 100% accurate so you can focus on growing your business.

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. 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 bookkeeping questions of a few hundred dollars. The English word “petty” derives from the French petit, which means “small” or “little.” Likewise, “petty” means minor or insignificant. So petty cash refers to a small sum of money set aside for trifling or little purchases, as opposed to major expenses or bills.

What is Petty Cash?

Sometimes, the balance in your petty cash fund becomes too low to purchase small expenses. In these cases, the custodian should tally and summarise the receipts. These receipts can be exchanged for a new check made to cash the total amount equal to the receipt. Once the check is cashed, this amount will be added to the petty cash fund to restore the funds to its original level.

According to the following safety guide, stealing petty cash funds is one of the main kinds of employee theft and fraud. Whenever the cash is replenished, the petty cash custodian must reconcile it. Sometimes, custodians perform a weekly or monthly reconciliation to track the cash balance.

Replenishing and Reconciling Petty Cash

If the petty cash fund does not balance, it needs to be investigated immediately. Differences could be due to errors, theft, or failure to secure and track petty cash funds appropriately. While a petty cash fund may not be necessary if you work solo, if you have even one employee, it may be worth it to set up a petty cash fund to manage those unexpected expenses properly. When the fund gets low, e.g. $20 remaining, the custodian requests a top up and submits the vouchers for reimbursement. Assuming the vouchers add up to $80, an $80 top up cheque is issued and an $80 debit towards office expenses is recorded.

Only a couple of chosen individuals should be key holders to the petty cash, as noted in the petty cash policy that your company might put together. Depending on where your business is based, there are different rules. For example, in the US the IRS requires all purchases over $75 to come with a receipt to be accepted as a deductible expense. The “right amount” for a petty cash tin will vary depending on the size of your business. A newly formed small business could get away with between £20-£50, while others hold up to £500. When an expense is small like those, it’s not worth going through the usual lengthy request and approval process that takes an average of nine days to reimburse an employee.

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If the petty cash fund is over, a credit is entered to represent a gain. If the petty cash fund is short, a debit is entered to represent a loss. The over or short account is used to force-balance the fund upon reconciliation. Petty cash vouchers, receipts and notes about purchases must all go into the book, which can sometimes lead to a mess of documents spilling out of the book. At any given time, the records should show all purchases that have already been made, how much cash has been taken and what the purchases were for. Most companies tackle the handling of petty cash with a petty cash log book of sorts.

What is Petty Cash in Accounting?

This cheque would then be cashed to acquire the actual cash needed for payments. Cash on hand is any accessible cash the business or liquid funds have. It can be in the form of actual money, like amounts you haven’t yet deposited in the bank or smaller bills and coins that you keep in the cash register to make change for customers. While the amount of money might be small when dealing with petty cash, there should still be a record of every petty cash transaction. There could be an additional field with the name of the officer approving the purchase. Once the balance falls below a certain amount, the petty cash account needs to be funded back to an appropriate level.

Closing a Petty Cash Fund

The amount of the petty cash fund is established at the time the fund is approved. Expenditures must meet the legal requirements of University funds and may not be used to circumvent current purchasing procedures. Petty cash is a small amount of money a company keeps for small, incidental expenses.

Reconcile your petty cash

Lastly, you must regularly review and reconcile your petty cash funds. Be sure to investigate and review any discrepancies as soon as they are discovered. In the UK, the HMRC often sets rates for things like meal and mileage expense claims, but they don’t specify a number.

All these details are usually completed through a petty cash voucher/worksheet. These worksheets come in different forms but generally require similar information. The best way to control the account is to designate one person in the office to be responsible.

All successful companies pay great attention to their expenses and invest hugely in tracking them. Do you have a method to disburse and efficiently track petty cash expenses in your organization? When a minor expense arises, the business can use petty cash instead of issuing an official company check. The convenience of petty cash enables easier tracking of small expenditures and reduces administrative burden. Petty cash is a small amount of cash that a business sets aside for small, incidental expenses. This could include expenses such as office supplies or refreshments.

Most purchases made with petty cash are unexpected expenses that can pop up, such as morning coffee for a meeting or dinner for an employee working overtime. In such cases, opting for a multi-currency account offered by Wise Business can eliminate the complexity of having multiple cards for different locations. With Wise Business expense cards you can improve petty cash management by providing a better oversight since the transactions are easily trackable on the app. The card offers real-time conversion in multiple currencies without the hefty fees. The company can keep a limit on the value of transactions so that the expenses are capped. A business debit card ensures that the money is held in an account where the money continues to earn interest.

The amount of petty cash will vary by company and may be in the range of $30 to $300. As financial transactions have become digital, many options are now available to manage petty cash. Most businesses now use different online platforms to make petty cash available to employees. Business debit cards are now made available to employees for their use. For small businesses, petty cash expenses and receipts are recorded in the petty cash book.¹ This is generally a manual process, and the receipts for these entries are also kept in physical form.