You need to have a box big enough to keep all the money and receipts in, but small enough to be inconspicuous and easily hid. Make sure you get one with a money tray so the bills and change can be easily organized. [2] X Research source These are available in most stationery or office supply stores.
The custodian or cashier of the petty cash box is responsible for disbursing petty cash funds in return for written receipts, replenishing cash in the fund when needed, and recording items purchased or paid for with petty cash funds. [3] X Research source
To add an extra layer of protection, the drawer you keep the box in can also have a lock. This would provide additional security for the money that is kept there. If you have more than one person who needs access to the cash box, think about having multiple keys made or finding a box that comes with additional keys.
For example, a company might restrict petty cash transactions to $50 or less. Any transaction above $50 would then be processed as a normal account payable.
A typical beginning amount is between $100-$500. [5] X Research source Make sure you keep all denominations of bills in the petty cash drawer. You should have a few $20, a few $10, a good number of $5, and a decent amount of $1. You should also have coins as well. This will make it easy to reimburse petty cash payments.
There should also be a column for deposits to the account to keep track of when the fund is replenished. The first payment to petty cash should be placed in the log as a petty cash deposit. Then all the transactions can be deducted from this amount. [6] X Research source
The transactions that are made to the company’s account for opening the petty cash fund should be a credit from the cash account for the amount of the check given to petty cash. You can then transcribe the transaction to the petty cash fund as a debit of cash to the account, which will establish its initial balance from $0 to the amount you deposit into the fund. [7] X Research source In this stage, there has been no actual expense because the money has simply been transferred from one account of the company to another, so the total assets of the company are unchanged.
The custodian should also reimburse the purchaser with exact change for the purchase. The custodian can also give an advance on petty cash in order to buy something. The company can come up with a system where the person who is going to buy something comes to the custodian for a cash advance. The custodian can mark the purchase in a log to explain what the purchaser intends to buy with the cash advance and how much is needed. Once the purchaser buys the products he set out for, he should return to the custodian with the receipt and change.
The custodian then cashes the check and deposits the funds in the petty cash box, restoring the beginning balance of the petty cash fund. If the petty cash is not used all that often or if there is a larger amount in the box, you may never use all of the petty cash. In these cases, the clerk can replenish what has been taken out once a month in order to keep track of the expenditures and help with the accounting of the petty cash. If you find that you need more money in your petty cash, you can increase the balance of the fund at any time. All the accounting clerk has to do is write a check to the custodian for the additional amount. For example, if the $100 initial balance is insufficient to pay the expenses the majority of time, increase the fund to $200 by writing a check to the custodian for a second $100. The custodian should then follow the normal procedure for replenishment. [8] X Research source
Common expense categories that use petty cash include postage, office supplies, and transportation. There is no need to make an entry for each transaction since an individual small expense is insignificant in the operation of the company. Log them as complete sums under each category. It is important to ensure that the total amount of receipts equals the amount initially in the petty cash account. Any variation may mean a purchase was not accounted for. For example, if you had $100 in the petty cash account, once it is drained, you should have $100 in receipts. The initial cash as a petty cash run rarely goes to 0. The receipts should equal the difference between the initial cash in petty cash account and the remaining cash before reimbursement. Accordingly, the check for reimbursement should equal the total of receipts and bring the petty cash fund back to original balance.
He should credit the cash account first for the total amount of the reimbursement to petty cash, which reduces the balance of the main cash account by the same amount. He should then debit the individual expense accounts for the sums spent in each. The total debit in the expense accounts will equal the credit of the petty cash account. [9] X Research source For example, if you have $200 in petty cash receipts, you would then need to record that $200 in the appropriate expense accounts. If all the $200 were “office expenses,” you would debit the office expense account $200. [10] X Research source The accounts for each type of expense will increase by the amount spent in each category to show that the company spent that much on those items. Then, the net income of the company will decrease by the amount spent on the expense statement.
