{"id":9958,"date":"2022-12-19T15:20:23","date_gmt":"2022-12-19T09:50:23","guid":{"rendered":"https:\/\/www.vatankilakir.com\/?p=9958"},"modified":"2023-11-24T16:58:16","modified_gmt":"2023-11-24T11:28:16","slug":"8-4-define-the-purpose-and-use-of-a-petty-cash","status":"publish","type":"post","link":"https:\/\/www.vatankilakir.com\/?p=9958","title":{"rendered":"8 4 Define the Purpose and Use of a Petty Cash Fund, and Prepare Petty Cash Journal Entries Principles of Accounting, Volume 1: Financial Accounting"},"content":{"rendered":"

\"petty<\/p>\n

The petty cash custodian is the person accountable for the petty cash fund. They\u2019ll be in charge of handling and disbursing petty cash and ensuring that the petty cash fund is used for its intended purpose. They\u2019re also responsible for the safekeeping of the physical cash and possess the key to the lockbox where the cash and receipts are kept. A check for cash is prepared in an amount to bring the fund back up to the original level.<\/p>\n

Petty cash is usually operated on an “imprest” system where an employee is tasked with maintaining and keeping track of petty cash. To get the fund started, cash a check with an amount that seems appropriate for the size of the company and the volume of anticipated transactions. The amount should be small enough that it\u2019s not terribly tempting for theft, but also big enough that it will be adequate for a month. If your GL doesn\u2019t already have a Petty Cash account on the balance sheet, you\u2019ll need to add one. The petty cash balance is present on the company balance sheet with cash in the bank and cash on hand.<\/p>\n

How Can Businesses Set Up A Petty Cash Management System<\/h2>\n

The petty cash custodian refills the petty cash drawer or box, which should now contain the original amount of cash that was designated for the fund. The cashier creates a journal entry to record the petty cash receipts. This is a credit to the petty cash account, and probably debits to several different expense accounts, such as the office supplies account (depending upon what was purchased with the cash).<\/p>\n

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Moving forward, the journal entry to be documented on the balance sheet should show a debt made to the company\u2019s bank account and a credit made to the petty cash account. Meanwhile, should the petty cash be used to cover a business expense, the relevant expense account \u2013 whether it is the employee claims or department office supplies \u2013 should be credited. Petty cash is a current asset and should be listed as a debit on the balance sheet. When first funding petty cash system<\/a> a petty cash account, the accountant should write a check made out to “Petty Cash” for the desired amount of petty cash and then cash the check at the company’s bank. The journal entry on the balance sheet would show a debit to the business bank account and a credit to the petty cash account. When petty cash is used for a business expense, the appropriate expense account, for example office supplies or employee reimbursement, should be expensed.<\/p>\n

How To Do Petty Cash Accounting & Recording in 6 Steps<\/h2>\n

This practice, in turn, will help to maximise the security of the petty cash fund. The most important part of a petty cash system is the documentation of each transaction. Documenting transactions is the way a business documents business expenses for tax purposes. By keeping track of all petty cash transactions – no matter how petty- you have records to back up deductions for those small business expenses. Having a petty cash fund speeds up reimbursements and is an important best practice in cash management.<\/p>\n","protected":false},"excerpt":{"rendered":"

The petty cash custodian is the person accountable for the petty cash fund. 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