Petty cash
Encyclopedia
Petty cash is a small amount of discretionary funds in the form of cash
used for expenditures where it is not sensible to make any disbursement by cheque
, because of the inconvenience and costs of writing, signing and then cashing the cheque. Petty cash is usually stored in a Petty Cash box and kept secure with a key.
The most common way of accounting for petty cash expenditures is to use the imprest system
. The initial fund would be created by issuing a cheque for the desired amount. An amount of $100 would typically be sufficient for most small business needs as the expenses to be covered are for small amounts. The bookkeeping entry for this initial fund would be to debit Petty Cash and credit bank account.
As expenditures are made, the custodian of the fund will reimburse employees and receive a petty cash voucher
with a receipt/invoice attached in return. At any given time the total of cash on hand plus reimbursed vouchers must equal the original fund.
When the fund gets low the custodian (a bookkeeper or a member of the administration staff) requests a top up and submits the vouchers for reimbursement. Assuming the vouchers add up to $80, an $80 top up cheque is issued and an $80 debit towards office expenses is recorded. Once the cheque is cashed, the custodian again has cash at the original amount $100.
s by someone other than the custodian. Use of petty cash is sufficiently widespread that vouchers for use in reimbursement are available at any office supply store.
The Petty Cash Daybook is one of the Daybooks used in bookkeeping and the Double-entry bookkeeping system
Cash
In common language cash refers to money in the physical form of currency, such as banknotes and coins.In bookkeeping and finance, cash refers to current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately...
used for expenditures where it is not sensible to make any disbursement by cheque
Cheque
A cheque is a document/instrument See the negotiable cow—itself a fictional story—for discussions of cheques written on unusual surfaces. that orders a payment of money from a bank account...
, because of the inconvenience and costs of writing, signing and then cashing the cheque. Petty cash is usually stored in a Petty Cash box and kept secure with a key.
The most common way of accounting for petty cash expenditures is to use the imprest system
Imprest system
The Imprest system is a form of financial accounting system. The most common imprest system is the petty cash system. The base characteristic of an imprest system is that a fixed amount is reserved, which will be replenished at the end of a period or when circumstances require. This replenishment...
. The initial fund would be created by issuing a cheque for the desired amount. An amount of $100 would typically be sufficient for most small business needs as the expenses to be covered are for small amounts. The bookkeeping entry for this initial fund would be to debit Petty Cash and credit bank account.
As expenditures are made, the custodian of the fund will reimburse employees and receive a petty cash voucher
Voucher
A voucher is a bond which is worth a certain monetary value and which may be spent only for specific reasons or on specific goods. Examples include housing, travel, and food vouchers...
with a receipt/invoice attached in return. At any given time the total of cash on hand plus reimbursed vouchers must equal the original fund.
When the fund gets low the custodian (a bookkeeper or a member of the administration staff) requests a top up and submits the vouchers for reimbursement. Assuming the vouchers add up to $80, an $80 top up cheque is issued and an $80 debit towards office expenses is recorded. Once the cheque is cashed, the custodian again has cash at the original amount $100.
Audit Controls
Oversight of petty cash is important because of the potential for abuse. Examples of petty cash controls include a limit (such as 10% of the total fund) on disbursements and monthly auditAudit
The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product. The term most commonly refers to audits in accounting, but similar concepts also exist in project management, quality management, and energy conservation.- Accounting...
s by someone other than the custodian. Use of petty cash is sufficiently widespread that vouchers for use in reimbursement are available at any office supply store.
The Petty Cash Daybook is one of the Daybooks used in bookkeeping and the Double-entry bookkeeping system
Double-entry bookkeeping system
A double-entry bookkeeping system is a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different nominal ledger accounts....