How to Reconcile Petty Cash? Steps and Best Practices

To combat this, make sure your employees understand upfront what petty cash can and can’t be spent on. A petty cash fund is a small fund whose purpose is to make small disbursements of cash. The cash over and short is usually recorded under the other revenues or other expenses on the income statement as its amount is usually very small.

  1. When your petty cash cashier puts money into the petty cash fund, they must create a journal entry in your books.
  2. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses.
  3. This petty cash replenishment journal entry is one of many bookkeeping entries used in accounting, discover another at the links below.
  4. And, you must record a petty cash journal entry when you put money into the petty cash fund and when money leaves the fund.

If you are reimbursed $20 for postage expenses, debit postage expense $20 and credit cash $20. Small payments are often needed for postage, delivery charges, office supplies, or entertainment expenses. A petty cash fund provides an efficient way of handling these payments. As a company grows, it may find a need to increase the base size of its petty cash fund.

Debit Memo vs Credit Memo – What’s the Difference?

There is no journal entry at this point; instead, the cash balance in the petty cash fund continues to decline, while the number of receipts continues to increase. The total of the receipts and remaining cash should equal the initial amount of petty cash funding at all times. However, recordation errors and theft may result in a variance from the initial funding amount. Likewise, we can make the journal entry for petty cash replenishment with the cash overage by debiting the expenses accounts and crediting the cash over and short account and the cash account. This is to ease the process of recording the accounting transactions and this usually works very well as long as there is proper petty cash control in place (e.g. dual signatures).

Access Petty Cash Replenishment Module

Compare this amount to the total amount listed on your receipts to determine if your accounts are equal. You (or your petty cash cashier) must also create journal entries showing what petty cash funds go toward. A designated employee, the petty cash custodian, accounts for your business’s use of petty cash. When an employee takes money from the petty cash fund, the petty cash custodian must record who took the money, the amount taken, what the money is for, and the date.

To determine which accounts to debit, an employee summarizes the petty cash vouchers according to the reasons for expenditure. The journal entry to record replenishing the fund would debit the various accounts indicated by the summary and credit Cash. In business, we usually need to replenish the petty cash fund when our petty cash box reaches a certain level of the fund or when it is about to be empty.

Making Disbursements From the Fund

Your petty cash records might be inaccurate due to employee theft or accounting errors. Some businesses put $50 into their petty cash fund while others put $250—the amount of your fund depends on your business needs. Make sure your employees understand what the petty cash fund can or can’t be used for by creating a petty cash policy. As your business grows, you may need to re-evaluate the amount you keep in your petty cash fund. In the petty cash policy document, we should state that the petty cash fund is $500 with Heather Smith as the custodian. She should also sign the document to transfer the petty cash fund accountability to her.

For guidance on how to replenish a fund, please refer to the Petty Cash Web-Based Training. After we click the green Save button, the first entry should appear like in the image below. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation. Ask a question about your financial situation providing as much detail as possible. Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs.

By the end of the month, the petty cash custodian, Mary, finds that the petty cash fund has been reduced to $50. Many of your business expenses are tax deductible, including purchases made with your petty cash fund. For example, employees cannot use petty cash to buy themselves coffee. Petty cash funds are useful alternatives to writing checks or using your business credit card to cover small expenses. Petty cash funds are used to purchase items for your business, reimburse employees who purchased business items, or to make change. For example, you might send an employee to pick up office supplies, like staples or printer paper.

Petty cash can be a convenient way for businesses to handle small expenses, but it is important to keep track of all expenditures to avoid overspending. Petty cash is typically issued by a designated petty cash replenishment individual or department within a company, often referred to as the petty cash custodian. This person is responsible for managing and disbursing the petty cash funds for small, everyday expenses.

Petty Cash

Finally, surprise petty cash counts should be made to maintain good internal control over the fund. Another entry to petty cash is not made unless the firm wants to increase or decrease the fund above or below $100. The total of the bill and coin entries is automatically calculated and displayed in the Summary – Total cash on hand section on the right portion of the Form. Arrange original receipts in chronological order (exclude any confidential subject information, if applicable) and by type.

The balance in the petty cash account should now be the same as the amount at which it started. If you plan to use petty cash for small business purchases like postage and office supplies, it may be handy to use the petty cash log to keep track of your transactions. Keeping careful records of cash expenditures will be a huge help when it comes time to reconcile your petty cash account. However, using accounting software, like QuickBooks Online, can make managing petty cash expenses easier and faster because it simplifies the recording of expenses.

Some companies use a voucher system, which essentially works the same way as the log. 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. Notice that the Petty Cash account is not impacted — it was originally established as a base amount, and its balance has not been changed by virtue of this activity.

In the worst-case scenario, cash may be missing without a clear understanding of why or where it went. Most businesses will reserve enough cash in their fund to meet their monthly needs. However, keeping too much cash could result in unused funds sitting in an account. Based on the information above, fill out the fields to record the expense. After a designated interval—usually, the same time each month or week—it’s time to reconcile or balance the petty fund account. This sum is the total withdrawn from the account during that time period.

Instructions for Replenishing a Petty Cash Fund

A petty cash custodian should be designated to safeguard and make payments from this fund. At the time the fund is established, the following journal entry is needed. This journal entry, in essence, subdivides the petty cash portion of available funds into a separate account. When you put money into the fund, you must create a journal entry debiting your Petty Cash account and crediting your Cash account.

The second journal entry is debiting petty cash and credit cash on hand (any cash account). Petty cash is used for buying supplies, postage, snacks for employees, and other small business expenses. When petty cash is expended, the employee must provide a receipt and explain the purpose of the purchase.