A Beginner’s Guide to Petty Cash: Managing and Recording It

what is a petty cash account

Each entry in the petty cash book should include the date, the amount, and what was purchased with the petty cash. Review your petty cash register before you replenish the petty cash fund. This should be small enough that employees won’t be tempted to steal it but large enough that you don’t have to replenish it too often. Pick a dollar amount you think will cover small office expenses for a month or so.

  • Most businesses will reserve enough cash in their fund to meet their monthly needs.
  • Every month, or as cash is needed, the custodian should summarize the petty cash log by expense account and record a journal entry debiting each expense and crediting petty cash.
  • If the employee needs to spend more than the petty cash request limit, they can use the business credit card.
  • The Cash Over and Short account will be used to balance the entry when the cash needed to get back to the petty cash account does not match the total of petty cash vouchers.
  • These minor payments include office supplies, stationery, meals, client lunch, stamps, etc.

They’ll be in charge of handling and disbursing petty cash and ensuring that the petty cash fund is used for its intended purpose. They’re also responsible for the safekeeping of the physical cash and possess the key to the lockbox where the cash and receipts are kept. With a petty cash fund in place, you can pay for small petty cash expenses like postage stamps, office supplies, office food and drinks, fuel expenses, parking tickets, and other unpredictable expenses. Any expense that’s too small to write a check for can be paid with cash from the petty cash fund. Note that it’s a good idea to set a maximum dollar amount for allowable expenses.

Petty cash expenses list

After recording the journal entry, the custodian should receive $300 cash or check from the owner or cashier. Whenever cash is needed, or every month the petty https://www.bookstime.com/ cash custodian must summarize the petty cash log by expense account. Also, he must record a journal entry debiting each expense and crediting petty cash.

Petty cash is a small amount of money that companies keep available for minor daily payments, which are inconvenient to make by writing a check. Review petty cash do’s and don’ts to ensure you correctly handle your fund. If you need help getting a petty cash log started, look up some free petty cash log templates to do some of the work for you. While petty cash is a relatively small amount of money, it can be easily stolen or abused if you don’t handle it right. If you use accrual accounting, the top-up may be credited from accounts payable instead of cash. In the upper right portion of the window, click the green New button to create a petty cash account.

Setting Up Your Petty Cash Fund

The entry must show an increase in your Petty Cash account and a decrease in your Cash account. To show this, debit your Petty Cash account and credit your Cash account. Petty cash, or petty cash fund, is a small amount of cash your business keeps on hand to pay for smaller business expenses.

Furthermore, keep a Microsoft Excel doc or other spreadsheets that tracks who spent what, when it was spent, and the total amount of spending for both the month and year to date. Not only will this help you hold employees accountable, it will also ensure you’re more prepared at tax time. It might seem tedious to log every tiny expense in this way, but there’s nothing petty about petty cash expenses.

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