Know Your Petty Cash Procedures
Here you will learn how to keep a record of petty cash, when to use petty cash vouchers, and how to keep track of floating petty cash.
Make sure your petty cash procedures are up to date so you can confidently reconcile your cash expenses at the end of each month and claim them for tax purposes.
What is petty cash?
Petty cash is a small amount of cash that any business can keep on its premises in a lockable container, or that can be used by vendors at markets and fairs.
Petty cash must be properly controlled with a petty cash register and accurately entered into the accounting system in exactly the same way you would maintain a bank account.
It is an advance system, which means that it starts with a fixed amount, the amount is reduced due to the expense, and then the amount is replenished to start over at the fixed amount. Wikipedia explains it here.
What is petty cash used for?
Petty cash can be used for:-
- small purchases like tea, coffee, sugar, stationery
- give change to customers paying cash
- hold cash that has been paid by a customer; it can be ‘deposited’ into petty cash instead of the bank account (Larger cash payments must be deposited into the bank).
This page is divided into two sections:-
- Four steps to set up petty cash and
- Four steps to maintain petty cash.
Four steps to set up petty cash
Step 1: Buy a Petty Cash Box
Read my article on 10 Things to Consider When Buying a Cash Box.
Choose the right size for you and one that has a lock and keys.
Most boxes have a removable tray in which all the coins are placed.
The tray comes out and underneath is a space for cashier’s notes and receipts.
Step 2: Decide on the petty cash fund
The petty cash fund cash is the maximum amount with which you start your cash.
You may decide that $50 is enough to get you started, so the float is $50.00. Withdraw $50 from your business bank account making sure to request the coins you think you will need.
Fill out a petty cash slip/slip as shown in the example below, and put the money and your first slip in the box!
Step 3: Petty Cash Slip
You can buy preprinted and numbered petty cash slips at a stationery store, or you can design one on your computer.
Here’s a free petty cash slip template you can use.
These preprinted tabs are good for helping you remember all the details to put on the bond.
Blank pieces of paper can encourage careless habits like forgetting to put the date, the proper amount, etc.
Step 4: Record Petty Cash
Prepare a blank petty cash register using a small book or you can use this free pdf template.
Scroll down to Step 2 below for a complete example.
Keep this record handy so you can regularly complete it by taking information from petty cash receipts.
The petty cash register is useful for keeping a running total of the balance remaining in the till, a good way to make sure the till doesn’t run out of cash.
If If petty cash is very small and rarely used, then you can get away with not using a petty cash register, but entering the information directly from the vouchers into the accounting system at the end of the month, when it is time to reconcile petty cash.
Four Steps to Maintaining Petty Cash
Step 1: Cash Withdrawals and Deposits
Any time cash is taken out of the cash register, a receipt must be filled out like this example below:-
There are several options here:-
- Fill out a coupon to withdraw cash of, say, $5.00 and when the change is returned, Complete the ‘cash collection’ box on the voucher (as in the example above). Attach the receipt; or
- Take the cash, buy the item, put the change and receipt back in the till and only then fill out the ‘cash out’ coupon with the exact amount based on the receipt.
- Take the cash, buy the item, put the change and receipt back in the till. Don’t worry about filling out the vouchers. Simply complete the petty cash register.
With option 2) and 3) care should be taken to put at least some type of receipt in the till if you do not have the patience to complete a receipt or record.
If you forget, you may find out at the end of the month that cash has been stolen without any record of what it was used for.
In this case, put it in the owner’s drawings if this happens to you, and only if you are the owner or have permission to do so! Otherwise, you have to fess up to the boss and admit there was a mistake :(.
Make sure there is a receipt for every item purchased the same way you would when making purchases from your business bank account (except Of course, this may not be possible in some cases, such as with parking meters).
Saving receipts and/or invoices is standard bookkeeping and accounting practice and is something an auditor will verify.
Step 2: Petty Cash Log
Periodically (perhaps every time the cash box is used, or weekly) complete the petty cash log.
See example below.
Keep it in or near the petty cash box so it’s within easy reach.
Step 3: Reconcile Petty Cash
Petty cash should be reconciled at the end of the month in the same way you would reconcile a bank account. Also, cash will need to be counted and the total should match the total at the bottom of the petty cash register.
Step 4: Petty Cash Reload
The final step is to reload petty cash up to the floating amount.
Many people get confused when it comes to recharging a float.
If you initially decided that the float is $50, and at the end of the month you have more than $50, the extra must be deposited into the bank account so that you start the new month with $50.
p>
If there is less than $50, then the box must be refilled up to the amount of $50.
You don’t top up with $50 (unless, of course, there’s nothing left in the till)!
.