A company’s petty cash is a little sum of cash kept on hand for employees to use when they need to quickly and easily buy minor, infrequently used things.
Because it happens to be a current asset, the petty cash drawer should be debited on the balance sheet. In order to get things rolling with a new petty cash account, accountants will need to draught a check for the first funding amount and have it made out to “Petty Cash.” The company’s designated bank should be used to cash the check.
How can you give an example of a negligible shift?
Petty cash is used for small business transactions if a check or the usage of a corporate credit card would be improper, unsatisfactory, or unavailable. Petty currency (banknotes and coins) on hand often ranges from $100 to $500, though this might vary from company to company.
Expenditures from a petty cash fund might include the following:
- Products for the workplace
- Letters, flower arrangements, and other small tokens of appreciation
- Buying and providing staff with treats, coffee, and snacks of their choosing.
- Reimbursing workers for some of their fair costs incurred on the job.
- Expenses associated with using a speedy delivery service, such as a courier or a parcel service
A Guide to Creating a System to Oversee Your Cash Inventories
One common phrase for the system your company uses to keep track of its petty cash is the “imprest system.” An essential part of this Petty cash management, a financial accounting approach is the practise of reserving a fixed sum of money, which is replenished when it is depleted. This refill’s payment comes from a separate source.
You need to assign someone the responsibility of overseeing security
The first step in setting up an imprest system is designating a trusted individual to oversee the petty cash safe. The custodian will be the primary individual responsible for handling petty cash within the company. Establishing accountability is made possible with the appointment of a custodian, which also serves to reduce the danger of errors or fraudulent conduct by restricting the number of employees who may access the funds in the fund.
Fund the Account with Money
The imprest system also has a mechanism for setting a default balance for the petty cash fund. The agreed-upon amount is moved from the business’ checking account to the fund, and the balance is tracked even as fresh expenses are made.
Retrieve the Money
Petty cash should be stored in a secure location, such as a safe, lock box, or locked drawer/filing cabinet, once it has been transferred there. Only the custodian and those specifically authorised, such as the chief financial officer, are allowed to hold the key. By doing so, you can improve who is responsible for what and cut down on instances of theft and fraud.
In addition, your business should have policies in place to regulate the handling of petty cash funds. Petty cash regulations define the parameters for what kinds of business expenditures can be considered “small change,” and how they should be recorded.
Largest Ever Payments
The petty cash account must be carefully managed and accounted for, and the custodian is responsible for keeping track of all expenditures. At the close of the accounting period, while the financial statements are being generated, the log will allow for accurate account reconciliation to be carried out.