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. When the cash balance in the petty cash fund drops to a sufficiently minimal level, the petty cash custodian applies for more cash from the cashier. This takes the form of a summarization of all the receipts that the custodian has accumulated. The cashier creates a new check in the amount of the receipts, and swaps the check for the receipts. The petty cash journal entry is a debit to the petty cash account and a credit to the cash account.
- As mentioned, petty cash can make things nice and convenient but does carry certain risks.
- However, the availability of petty cash doesn’t mean that it can be accessed for any purpose by any person.
- Your available cash should always match the amount recorded in your petty cash log.
- 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.
- However, recordation errors and theft may result in a variance from the initial funding amount.
Once your running balance hits your replenishment amount, you’re ready to write a check to bring the petty cash total back to the original funded amount. The petty cash custodian is the person accountable for the petty cash fund. They’ll be in charge of handling and disbursing petty cash and ensuring that the petty cash fund is used for its intended purpose.
Instructions for Replenishing a Petty Cash Fund
There is no entry to the Petty Cash account when merely replenishing the petty cash. At the time the entry is made, the custodian will receive a $315 check that’s cashed and the money placed in the lockbox. Overall, there’s a total of $500 in the lockbox after replenishment. In our example above, we asked for $315 as replenishment because it’s the amount of total receipts. Hence, the sum of all receipts plus the ending balance should be equal to the petty cash of $500. In the petty cash policy document, we should state that the petty cash fund is $500 with Heather Smith as the custodian.
In accounting, petty cash refers to a small amount of money that is used for minor expenses. For example, if the company has a policy of only paying for lunch with petty cash, then each employee would be allotted $5 to spend on their own lunches. Using prepaid company credit cards instead of petty cash is a much safer and more automated procedure. To keep track of all petty cash transactions, first create a petty cash account; next, record all petty cash disbursements; and finally, refill the petty cash account when it runs out.
Recall that materiality means that the dollar amount in question would have a significant impact in financial results or influence investor decisions. Each time you tap into a petty cash fund—that is, take money out—a slip or whos included in your household voucher should be filled out. This acts as a receipt, logging the amount of the withdrawal, the date, the purpose, and other details. Increasingly, these slips are electronic ones, entered in a digital spreadsheet or ledger.
And when you maintain records of all your business’s expenses, you can claim tax deductions. In general, one petty cash log template should be kept each month. The Galaxy’s Best Yogurt establishes a petty cash fund on July 1 by cashing a check for $75 from its checking account and placing cash in the petty cash box. At this point, the petty cash box has $75 to be used for small expenses with the authorization of the responsible manager. The journal entry to establish the petty cash fund would be as follows.
Using an Excel Spreadsheet to Track Petty Cash
For these reasons, it is important to weigh the risks and benefits of using company petty cash before making a decision. Add up the total expenditure listed on each petty cash voucher in the petty cash fund (the information can also come from the petty cash book). Subtract this amount from the calculated amount of cash withdrawn. If there is a residual balance, then there is a cash overage in the fund.
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The term “petty cash” refers to the small cash fund a business keeps on hand to cover small emergency and unexpected expenses. The term “cash on hand” refers to all the liquid assets a business has. Cash on hand refers to all the money you have in your safe and in bank accounts, including the actual bills and coins you have in your petty cash fund.
How to Write an Official Receipt of Money
To reconcile, you’ll need to match your receipts with the amounts recorded on the petty cash form. Whatever you decide, it’s important that only one person have access to the fund at any time, to avoid unaccounted for withdrawals and/or theft. Once you determine who will handle petty cash, you’re ready to cash a check and deposit the funds into the petty cash lockbox.
If the petty cash account often needs to be replenished before the end of the accounting period, management may decide to increase the cash balance in the account. The staff has used petty cash to pay for the taxi $ 100, office supplies $ 200, and other expenses $ 100. The remaining balance is only $ 100, so it requires replenishing from the cash on hand accounts.
Having a petty cash fund speeds up reimbursements and is an important best practice in cash management. It enables your employees to perform quick errands without using personal money. You have to craft a clear petty cash policy as it sets out the purpose and use of the petty cash fund. The second journal entry is debiting petty cash and credit cash on hand (any cash account). It is useful to charge unexplained differences to an expense account set aside for that purpose. By doing so, it is much easier to track the cumulative amount of undocumented losses over time.
You’ll also want to decide the replenishment point, which is where your expenses are recorded, and a new check is written to bring the petty cash total back to its original amount. For example, if your petty cash fund is $100, you may want to reimburse the fund when it drops below $15. If you’re ready to set up a petty cash fund for your office but aren’t sure where to begin, follow the simple steps below to have your petty cash fund operational in no time. To begin, have a secure place to store your petty cash funds, such as a lockbox or locked drawer. Petty cash is the money a business keeps on hand to pay for miscellaneous purchases. 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.