What is a Petty Cash Buyer?

A petty cash fund offers the quickest and simplest way to pay for small expenses and needs. Unlike writing checks or using credit cards, cash is easy to track and less subject to theft.

Nevertheless, a petty cash account still requires regular accounting and reconciliation. This is done by providing the petty cash custodian with new funds in exchange for receipts from purchases that depleted the fund.

What Is Petty Cash?

Petty cash is a small amount of actual cash that your business keeps on hand to pay for low-cost expenses, like postage stamps or donuts for a staff meeting on their twitter post. It is used in lieu of writing a check or using a company credit card to make these purchases.

Petty cash is kept in a secure location, such as a locked drawer or safe, to reduce the risk of theft by employees or customers. Your petty cash policy should include specifics on how much money to keep in the account, how often it is replenished (e.g., weekly), how to record transactions, and how to handle petty cash withdrawals.

Every purchase made with petty cash must be recorded. This can be done with a petty cash log or by using petty cash slips that list the date, expense item, vendor name and amount. These receipts should then be filed in the petty cash envelope or in a petty cash folder and later entered into your business accounting system as a petty cash entry.

A petty cash allowance can be beneficial for businesses that have many low-cost purchases or are too small to justify the cost of buying everything with a company credit card or writing checks. Having this fund in place can help you reduce the risk of employee theft and fraud and ensure that all minor expenses are captured and recorded properly for tax purposes.

Petty Cash Funds

A petty cash fund is an amount of money that a company keeps on hand for expenses too small to justify writing a check or using a credit card. Petty cash is usually stored in a safe or lock box, and only the petty cash custodian and other designated individuals should have access to it. A petty cash fund can be used for items such as flowers, food, postage, gifts, office supplies and taxi charges. In a large organization, each department may have its own petty cash fund to provide more local control.

A good petty cash system requires that receipts be kept for all purchases. This is a great way to help prevent theft or inaccurate record-keeping. It also provides a backup in case there is a dispute over an expense item or amount. In addition, a petty cash reconciliation should be prepared and submitted to accounting each month. The reconcilement should show the available balance in the petty cash account compared to the amounts recorded on the petty cash log and should show any cash over or short.

Small businesses often choose to have one person responsible for managing the petty cash fund, such as an office manager or treasurer. This makes the process simpler and helps to reduce the risk of theft or misuse of funds.

Petty Cash Custodians

A petty cash custodian is a University employee designated by a dean or department head to assume legal responsibility and control of a petty cash fund and/or change fund. The custodian is responsible for the accountability, safekeeping and distribution of petty cash funds and receipts. The custodian is also responsible for maintaining and safeguarding the petty cash fund and/or change box at all times. The petty cash custodian performs a monthly reconciliation to verify that the total of all cash on hand plus all receipts equals the original amount of the petty cash fund. Any overages or shortages are personally repaid by the petty cash custodian.

When the petty cash account gets low, the custodian fills out a form and asks for more money, known as a replenishment request. The custodian prepares a list of cash, receipts and the original petty cash fund amount on hand to submit as a record of reconciliation and verification for the new amount of money received from the department’s budget. The custodian must also sign a receipt acknowledging personal liability for the value of the new money received.

Petty cash transactions are recorded on financial statements only when the custodian needs more money for a purchase or to replenish the petty cash fund. In these situations, the accounting journal entry is a debit to petty cash and a credit to cash. The custodian should deny a refill request if it is not supported by original itemized receipts or if the expense is not allowable under University policy.

Petty Cash Journal Entry

When a company uses petty cash, it does not record individual purchase transactions in its accounting books. However, the petty cash account needs to be managed through certain journal entries. These are used to (1) establish the fund, (2) increase or decrease its balance (replenish the fund as the money is spent), and (3) adjust for shortages of or overages of cash.

When the petty cash level gets low, a journal entry is passed to replenish the account. This entry debits the different petty cash disbursements and credits the petty cash account. This will raise the balance back up to its initial funding level.

The petty cash account should also be maintained with a log of who takes the money and for what purpose it is being used. This helps to eliminate unauthorized spending by eliminating the need for employees to write expense reports to obtain approval for small purchases.

Petty cash is useful when expenses are too minor to warrant a formal expense reporting process, such as purchasing pens or paper for the office. It can also be useful when a manager without check-signing authority is needed to sign a check for an unexpected or urgent need. For example, a company might use petty cash to pay wages to coolies for shifting furniture when a company cannot afford to wait until regular payroll next week.