Petty Cash: What It Is, How It’s Used and Accounted For, Examples

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What does it mean to replenish the petty cash fund?

Each time the fund is replenished, the amount of petty cash in the fund is restored to the original fund balance. After the owner or bookkeeper records all expenses in the books, cash must be taken from the checking account to replenish the petty cash box.

  • Designate a petty cash fund custodian.Prior to requesting a petty cash account, the unit should identify an individual who will be fiscally responsible for the custody and maintenance of the petty cash.
  • However, the petty cash custodian may perform weekly or daily reconciliation to keep track of the fund balance.
  • Enables quick and easy reimbursement of minor authorized purchases made on behalf of a business without having to fill out an expense report or process a check.
  • Harold Averkamp has worked as a university accounting instructor, accountant, and consultant for more than 25 years.
  • Although there can be minor variances, when unbalanced, the source of the discrepancy should be identified and corrected.
  • A petty cash fund between $100 and $500 is sufficient for many small businesses.

A petty cash receipt needs to be issued every time the payment takes place. Material non-cash transactions are included in a statement of cash flows. Note that commitment control/PeopleSoft General Ledger is not charged for a Petty Cash expenditure until the Petty Cash Fund is replenished.

Step 3: Record Petty Cash Expenses

Petty cash funds must never be commingled with other USNH cash funds, personal funds, miscellaneous cash receipts, or collected revenue of any type. The Custodian’s supervisor should periodically inspect the records and count the cash in the petty cash fund to ensure proper accountability. A petty cashier might be assigned to issue the check to fund the petty cash drawer and make the appropriate accounting entries.

What does it mean to replenish the petty cash fund?

The reason for replenishing the fund at the end of the accounting period is that no record of the fund expenditures is in the accounts until the check is written and a journal entry is made. (Sometimes What does it mean to replenish the petty cash fund? we refer to this fund as an imprest fund since it is replenished when it becomes low.). When a petty cash fund is in use, petty cash transactions are still recorded on financial statements.

What happens when petty cash doesn’t balance?

If a surplus or shortage is discovered, the difference will be recorded in Cash Short ; a debit balance indicates a shortage , while a credit represents an overage . For petty cash reconciliation, subtract the amount in your petty cash fund from the amount stated in your books. This shows you how much cash you have withdrawn from the fund. Compare this amount to the total amount listed on your receipts to determine if your accounts are equal. Petty cash funds are useful alternatives to writing checks or using your business credit card to cover small expenses.

At all times, the total of all receipts plus the remaining cash should equal the total amount of the petty cash fund. If the vouchers total $130 but the fund needs only $125, the journal entry includes a $5 credit to the cash over and short account. Notice that the petty cash account is debited or credited only when the fund is established or when the size of the fund is increased or decreased, not when the fund is replenished. A cash fund available for reimbursement and purchases on demand is called a petty cash fund. As needed, this account should be reconciled and the custodian should ensure they have receipts to back up all cash withdrawals. When the petty cash fund is replenished, the petty cash account is credited for the total of all…

How to Do a Petty Cash Reconciliation

There are six steps to setting up a petty cash fund and some general rules to follow to keep track of what comes in and out. Pittsfield Sound Center pays $330,000 for a group purchase of land, building, and equipment. At the time of acquisition, the land has a current market value of$54,000, the building’s current market value is $90,000, and the equipment’s current market value is$216,000.

A Beginner’s Guide to Petty Cash: Managing and Recording It – The Motley Fool

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The request must not come from the individual who will be the custodian of the fund. Whenever a payment is made from petty cash, it is recorded through a voucher and/or a logbook, with a receipt attached. Sometimes, especially in very small companies, the stack of petty cash vouchers serves as a log and the transaction details are entered into the bookkeeping system directly from the vouchers themselves. Make sure a petty cash voucher is fully filled out and signed both by the employee receiving the money and the custodian disbursing the funds.

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