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What is Petty Cash? Definition Meaning Example

define petty cash

This cheque would then be cashed to acquire the actual cash needed for payments. The cash is kept on site, usually in a secured drawer or safe that can only be accessed by someone with authority to handle the cash. The purpose of the fund is to have some cash on hand in case a small purchase needs to be made.

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If not, additional funds must be transferred from the normal business checking account. Companies expend cash on items necessary to run a business, such as utilities, wages, maintenance, office supplies and other items. Journal entries typically follow petty cash the same format to record transactions in a company’s general ledger. Double-entry accounting requires both a debit and credit in each expense accounting entry. Petty cash is a small amount of money a company keeps for small, incidental expenses.

Step 2: Store the petty cash in a box

Cash that a company keeps for minor expenses is called petty cash. Most firms use the petty cash fund for such expenses since it is an easier option when compared to cheques and cards. As we mentioned earlier, petty cash is used instead https://www.bookstime.com/ of cash or check to pay for small expenses in a company. Also, it takes a considerable amount of time for the check to be signed and processed. Therefore, companies always resort to cash for payment to avoid all this hassle.

Making sure that any expense you reimburse has a receipt is also helpful. Petty cash funds should be reconciled at regular intervals to double-check that everything is balanced and accurate. This can be looked at as an internal audit of a company’s petty cash. For example, the Galaxy’s Best Yogurt maintains a petty cash box with a stated balance of $75 at all times. Upon review of the box, the balance is counted in the following way. Next, total the amount of all the outstanding slips (plus attached receipts).

What Is an Example of Petty Cash?

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. In this case, the cash account, which includes checking accounts, is decreased, while the funds are moved to the petty cash account.

To know more about Happay and how to manage your branch petty cash more efficiently, schedule a demo with us today. By setting up a budget, you can avoid immediate expenses by your employees. Check the items for which they are spending, how much, and how often they are spending.

Determine who will manage petty cash

Give out petty cash vouchers or slips whenever employees use petty cash funds. The petty cash voucher must contain the price with the date and amount. Make sure to record the employee’s name, the name of the service provider or vendor, and the name of the person who authorized the cash. To record the petty cash transactions for August, you would need to record the expenses as a journal entry. When your petty cash fund starts to run dry, it’s time to record the expenses and reimburse the fund. To reconcile, you’ll need to match your receipts with the amounts recorded on the petty cash form.

Large purchases might require using a company credit card or writing a check. When there is a shortage of cash, we record the shortage as a “debit” and this has the same effect as an expense. If we have an overage of cash, we record the overage as a credit, and this has the same impact as if we are recording revenue.

Thus, the difference is only reconciled when the petty cash box must be replenished. Petty cash or a petty cash fund is a small amount of money available for paying small expenses without writing a check. Petty Cash is also the title of the general ledger current asset account that reports the amount of the company’s petty cash. The amount of petty cash will vary by company and may be in the range of $30 to $300.

If the remaining balance is less than what it should be, there is a shortage. If the remaining balance is more than what it should be, there is an overage. Although there can be minor variances, when unbalanced, the source of the discrepancy should be identified and corrected. To maintain internal controls, managers can use a petty cash receipt ((Figure)), which tracks the use of the cash and requires a signature from the manager. On the other hand, cash on hand is an accounting term that generally refers to a company’s liquid assets.

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