Kategorier
Bookkeeping

Petty Cash: Meaning, Accounting, Management, and Examples

what is a petty cash account

Petty cash is a small amount of cash kept on hand to cover small, and often unexpected, expenses that pop up during a business day. You might use money from the petty cash fund to pay for minor expenses such as postage, Uber fares, or reimburse someone $10 for bringing in a box of donuts. If you’re ready to set up a petty cash fund petty cash for your office but aren’t sure where to begin, follow the simple steps below to have your petty cash fund operational in no time. To begin, have a secure place to store your petty cash funds, such as a lockbox or locked drawer. Each time you tap into a petty cash fund—that is, take money out—a slip or voucher should be filled out.

what is a petty cash account

The petty cash account is a current asset and will have a normal debit balance (debit to increase and credit to decrease). Here is a video of the petty cash process and then we will review the steps in detail. If the balance in the petty cash account is supposed to be $75, then the petty cash box should contain $45 in signed receipts and $30 in cash. Assume that when the box is counted, there are $45 in receipts and $25 in cash.

Create a free account to unlock this Template

You need to make a last-minute courier delivery, and the post office closes in 15 minutes. Oh, also, you need to buy your team some food for a late afternoon sprint, and the office printer is out of ink. Your company isn’t big enough to have company credit cards yet, and you’re big on keeping personal and business expenses separate. Petty cash refers to a small amount of hard currency that a businesses will keep on hand to pay for miscellaneous and unexpected items, such as team lunches, birthday cakes, or office snacks.

Making a single person responsible for petty cash cuts down on confusion and minimizes the risk of theft. It might be tempting to wing it for as long as you can, but setting up a proper petty cash system early is crucial. Sign up to receive more well-researched small business articles and topics in your inbox, personalized for you.

pricing, and service options subject to change without notice.

Petty cash accounts are managed through a series of journal entries. Entries are needed to (1) establish the fund, (2) increase or decrease the balance of the fund (replenish the fund as cash is used), and (3) adjust for overages and shortages of cash. At the time the entry is made, the custodian will receive a $315 check that’s cashed and the money placed in the lockbox. Overall, there’s a total of $500 in the lockbox after replenishment.

  • As the receipts are reviewed, the box must be replenished for what was spent during the month.
  • Read on to learn about establishing a petty cash fund, handling petty cash accounting, reconciling your petty cash account, and claiming a tax deduction.
  • For example, employees cannot use petty cash to buy themselves coffee.
  • The reconciliation process ensures that the fund’s remaining balance equals the difference between the original balance minus charges detailed on receipts and invoices.
  • Additionally, the petty cash custodian is also responsible for distributing the cash and collecting bills and receipts for all expenses caused by the petty cash.
  • To determine which accounts to debit, an employee summarizes the petty cash vouchers according to the reasons for expenditure.

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. If there were cash overage, the petty cash account would be debited and the cash over and short account would be credited. In this case, the expense balance decreases, and the year-end balance is the net balance from all overages and shortages during the year. The bottom portion of the petty cash log won’t be completed until the cash in the lockbox needs to be replenished. There’s no need to make journal entries when expenses are reimbursed from cash in the lockbox. To reimburse expenses, require a receipt from the employee and then provide them with the exact amount of cash and coins from the lockbox.

Replenishing and Reconciling Petty Cash

He is the sole author of all the materials on AccountingCoach.com. Eric Gerard Ruiz is an accounting and bookkeeping expert for Fit https://www.bookstime.com/ Small Business. He completed a Bachelor of Science degree in Accountancy at Silliman University in Dumaguete City, Philippines.

what is a petty cash account