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ΕλληνικάHaving petty cash on hand eliminates the need to constantly write cheques or use company credit cards for these small purchases. It also helps to streamline the accounting process, as all expenses are recorded in one place. Additionally, it can help to build goodwill with vendors when they see that the company is prepared to do business with them on a regular basis. All in all, company petty cash can be a helpful tool for keeping businesses running smoothly. Since expenses are paid from petty cash funds, you keep receipts and record the expenses in the appropriate accounts.
When the petty cash fund is established, a current asset account titled Petty Cash is added to the chart of accounts in the accounting system. Since most petty cash purchases are for business expenses, you will likely be able to deduct them from your business’s taxes at year-end. After collecting receipts from your employees, update your books to show the used petty cash.
This might be the result of simple mistakes, such as math errors in making change, or perhaps someone failed to provide a receipt for an appropriate expenditure. Whatever the cause, the available cash must be brought back to the appropriate level. While all this may sound like too much work to maintain such as small pot of money, the petty cash expenses are typically tax deductible just like any other business expense–and they can add up.
Replenishment Debits/Credits
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. The debits are assigned to the expense accounts indicated on the petty cash vouchers/receipts. Since the replenishment check is drawn for a company’s checking account, the credit journal entry goes to the Cash account.
How to Record the Petty Cash Replenishment
Policies should be established regarding appropriate expenditures that can be paid from petty cash. When a disbursement is made from the fund, a receipt should be placed in the petty cash box. The receipt should set forth the amount and nature of expenditure. At any point in time, the receipts plus the remaining cash should equal the balance of the petty cash fund (i.e., the amount of cash originally placed in the fund).
Custodian and Cashier
The petty cash is used to pay for the small expenses that suppliers do not allow to purchase on credit. The company will use petty cash and it will keep decreasing to a low level. The company needs to replenish the petty cash so that it will increase to a maximum level. Finally, using petty cash can also create a sense of entitlement among employees. If they are used to having access to extra funds for small purchases, they may begin to expect it as a regular perk of the job.
If a company decides to record expenses as a credit to Petty Cash, then the balance of the Petty Cash general ledger account should tie to the actual amount of physical currency in the petty cash fund at all times. Once the replenishment check is cashed, the custodian adds the top-up money to the remaining currency and coins left over in petty cash box so that the original float level is restored. As the petty cash balance in the box decreases, the amount of vouchers and/or receipts should increase correspondingly and add up to the total amount withdrawn. You must document each expense if you want to deduct it from your business taxes. If you don’t document your petty cash purchases, you will not be able to deduct the expenses when you pay business taxes. For petty cash reconciliation, subtract the amount in your petty cash fund from the amount stated in your books.
Petty Cash Replenishment Bookkeeping Entries Explained
- These errors cause the cash in the fund to be more or less than the amount of the fund less the total vouchers.
- Company petty cash is a small amount of cash kept on hand by a business for the purpose of making small purchases.
- The petty cash is used to pay for the small expenses that suppliers do not allow to purchase on credit.
- No journal entry is made at the time of payment.The entries occur only when the fund is replenished.
The entry to increase the fund would be identical to the first entry illustrated; that is, the amount added to the base amount of the fund would be debited to Petty Cash and credited to Cash. Otherwise, take note that the only entry to the Petty Cash account occurred when the fund was established. For example, employees cannot use petty cash to buy themselves coffee. Your petty cash custodian should be the only employee distributing petty cash. Your petty cash custodian determines if the expense is appropriate according to your business’s petty cash policy.Petty cash is considered a highly liquid asset. Consider keeping your petty cash locked in a drawer, safe, or filing cabinet.
Company ABC uses the petty cash for the expense amount $ 400 and the remaining balance is only $ 100. At a minimum, petty cash is reconciled on a monthly basis as part of the month-end close or more frequently, depending on a company’s transaction volume. Your petty cash records might be inaccurate due to employee theft or accounting errors. Make sure your employees understand what the petty cash fund can or can’t be used for by creating a petty cash policy.
Petty Cash Journal Entry
And, you must record a petty cash journal entry when you put money into the petty cash fund and when money leaves the fund. Consider recording petty cash transactions in your books at least once per month. Let’s assume that a company has a petty cash fund of $100 and its general ledger account Petty Cash has a debit balance of $100. Mary is the petty cash custodian who is the only person handling the petty cash transactions. At all times Mary should have some combination of cash and petty cash vouchers (receipts) that are equal to $100.
Most businesses have a petty cash process in place to ensure that the fund is not mishandled and all transactions are accurately captured for financial statements and tax purposes. Many of your business expenses are tax deductible, including purchases made with your petty cash fund. To create paid cash to replenish the petty cash fund journal entries that show petty fund purchases, you must debit the corresponding accounts (e.g., Office Supplies account if you purchase supplies) and credit your Petty Cash account.
- If receipts are not properly tracked and filed, it can be difficult to account for all of the expenses.
- The journal entry for this action involves debits to appropriate expense accounts as represented by the receipts, and a credit to Cash for the amount of the replenishment.
- Remember to record petty cash expenses in your accounts as journal entries.
- If the employee needs to spend more than the petty cash request limit, they can use the business credit card.
- Then, create another journal entry debiting the Petty Cash account and crediting the Cash account.
The custodian and the business owner, CFO or Financial Controller should be the only individuals who have the key to the container. For the past 52 years, Harold Averkamp (CPA, MBA) hasworked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com. For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online.
Note that this is done in addition to replenishing the fund whenever it is running low. Company petty cash can be a great boon to businesses, large and small. Petty cash is a designated sum of money that is kept on hand for small, everyday expenses that may come up.
The custodian is responsible for safeguarding the money and maintaining petty cash vouchers or receipts for every disbursement. It is important to realize that the $80 check will be credited to Cash (the company’s checking account). There is no entry to the Petty Cash account when merely replenishing the petty cash. Petty cash replenishment refers to the process of restoring the cash balance in the petty cash fund back to its original imprest amount. Hence, documenting all of your petty cash transactions maximizes the opportunity to take advantage of the tax deductions available for those expenses.
