While the custodian typically maintains expense records, there is no strict rule to bring the amount back to a specific amount after each reimbursement. Refills may occur less frequently and there may be less focus on maintaining a consistent balance. The custodian can request a refund if necessary, without waiting for the fund to be completely exhausted. These transactions are typically small and require cash payments and, therefore, are recorded in the petty cash book. Larger expenses are typically handled through formal accounting channels and banking methods.
Sample Petty Cash Book (Running Balance)
Enhance expense tracking with Pazy and simplify petty cash management, improving financial clarity for businesses of all sizes. Effective petty cash management, driven by well-defined processes, provides a structured approach for maintaining accuracy, ensuring compliance, and optimizing the use of funds. Even though the petty cash book is maintained by a petty cashier, the head accountant must look over it. Plus, all the expense policies for other businesses and petty expenses should follow the same baseline. Businesses need to establish a routine for periodic reviews to ensure accuracy, identify anomalies, and address any emerging issues in a timely manner. Ideally, a financial controller or a member of the finance team should be responsible for checking, reviewing, and auditing the petty cash book at a fixed interval.
Fixed system of petty cash
Thousands of challenges arise, and hundreds of problems must be solved daily while managing an organization’s finances. Petty cash expense and maintaining a petty cash book is one such challenge that you must never take lightly. Under this system, a lump sum amount of cash is given to the petty cashier. The cashier is responsible for keeping a record of all the expenses for the review of the head cashier. They must present it before requesting new funds to run the day-to-day expenditure again. However, several transactions during the ordinary course of the business are of negligible amounts and are not recorded in the cash book account.
A petty cash book is kept to keep track of tiny expenses like stamps, letterhead, and communications. Particular cash that is used to pay for day-to-day petty expenses in a firm is called petty cash. In this petty cash system, the petty cashier will submit a statement of expenditure for approval at the end of a set period. The head cashier can check and verify the expenses and easily prevent fraud. This way, the head cashier will know where the money is and have better control over all those expenses. In the fixed petty cash system, the chief cashier offers a fixed amount of money for a specified period to the petty cash cashier.
Now the petty cashier can spend the money on day-to-day expenses according to the company’s expense policies. For example, the management can fix the maximum limit of expenditure, restrict expenses for some items or activities, etc. The petty cashier then encashes the cheque and keeps this money in a box termed a petty cash box. This means any change in the petty cash fund does not require a new journal entry. The most effective way to record petty cash payments analytical petty cash book is the most effective way to record petty cash payments.
Imprest system
- The person responsible for recording the receipts and the payments is known as the petty cashier.
- This may often require a company to hire an accountant capable of managing these accounts.
- Plus, you also have to list down rules for making these expenses, like process, receipt requirements, voucher validity, etc.
- Every company has a petty cashier who is responsible for maintaining the petty cash book.
This type features multiple columns for different categories of expenses, such as travel, postage, and office supplies. For example, a small retail store can use a columnar petty cash book to separately record expenses for office supplies, staff meals, and travel. Compared to a cash book, which contains larger amounts, the petty cash book records smaller and recurring spending. This allows for more precise control and tracking of regular, and minor transactions, and helps with the effective petty cash reconciliation.
Adapt to changes with regular revisions
The petty cash book has declined in importance, as companies are gradually eliminating all use of petty cash, in favor of using company credit cards. So a business needs a petty cash book to track and manage these expenses efficiently. Periodically, you should reconcile the petty cash book to ensure that the amount of cash in the fund matches the transactions recorded in the book. To do this, add up all the expenses recorded in the petty cash book and subtract them from the opening balance.
Control spending, boost accuracy!
The mechanism exhausts once the same accounts fall below a predetermined threshold. In addition to keeping a primary or regular cash book, several businesses also keep a smaller cash book called a petty cash book what is petty cash book to track the company’s daily little expenses. For all money transfers in a firm, larger and smaller businesses keep two distinct types of petty cash books. Part of the manual record-keeping system of a firm, in most companies, a petty cash book is a ledger book instead of a computer record.
The petty cash book is a useful control over petty cash expenditures, since it forces the petty cash clerk to formally record all cash inflows and cash outflows. When the petty cash fund is replenished, the total of the expenses recorded in the petty cash book should equal the amount of cash that was removed from the fund. The remaining cash in the fund plus the total of the recorded expenses should equal the original amount of the petty cash fund. For businesses looking to streamline their financial processes and enhance control over expenditures, adopting a well-structured petty cash book system is a step in the right direction. By doing so, they can ensure that every penny is accounted for, contributing to a more organized and financially sound operation. A petty cash book is used as an accounting system for documenting smaller expenses incurred in a company’s daily operations.
A designated individual, often an accountant or office manager, should be responsible for managing the petty cash fund. By following these steps, you can ensure that your petty cash fund is properly recorded, reconciled, and maintained. The system is regularly replenished to maintain the original imprest amount, ensuring efficient control and tracking of minor expenses. As a result, companies keep and maintain a petty cash book, so all such transactions, which are small or insignificant in nature, can be recorded under one head. A petty cash voucher is a document used to record individual petty cash transactions, serving as proof of expenditure. Record the initial amount of petty cash at the start of the accounting period by debiting the Petty Cash account.
Payments using the funds
To sum up, we may say that the petty cash book of documenting has become less significant over the period. However, it might still be a helpful tool to document businesses in places where they do not use contemporary technology. The person responsible for recording the receipts and the payments is known as the petty cashier. The company’s administrative department usually maintains the petty cash book as the accounts departments generally take care of more significant business transactions.
- Regular reconciliation ensures that any discrepancies are addressed promptly, preventing the accumulation of errors that could lead to larger financial inaccuracies.
- To pass the journal entry for total expenses paid, individual petty expenses are debited and credited to Petty Cash Account.
- At the end of a specific period, the petty cash fund is replenished to its original amount, based on the expenses recorde d.
- As small expenses occur, the custodian reimburses individuals and records the details in the petty cash book.
This may often require a company to hire an accountant capable of managing these accounts. Doing this might not be a problem for some businesses but may be seen as an additional expense for the company. The meticulous recording of numerous small transactions can make bookkeeping a time-consuming endeavor.
Usually, it is someone from the finance team or the administrative team who is given the role of a custodian. Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting. You can be sure that no amount digits were altered in the book and that all expenses were compliant with the spending policies. These surprise checks are important to check if any employee is getting away with fraud and that everything is maintained according to the process. A prepaid card is much more secure in terms of the safety of your funds as you can block it through a digital system once you realize that it has been stolen or lost. When there is a lack of transparency regarding the financial situation of the company, it can lead to a lack of trust in the organization and external stakeholders.
The key columns in a petty cash book include Date, Particulars (Description of Expense), Voucher Number, Amount Spent, and Balance. Periodic reconciliation is necessary to ensure that the recorded transactions match the actual cash on hand, adding an extra administrative task. Streamlines the recording process for minor transactions, saving time and effort compared to more formal accounting procedures. Periodically reconcile the petty cash book with the actual cash on hand to identify any discrepancies and maintain accuracy. Decide on the amount of money to be kept in the petty cash fund, considering the frequency and nature of small expenses. This blog will guide you through petty cash format, operations, and significance, offering insights to streamline your financial processes.
Receipts serve as tangible evidence of expenditures, aiding in documentation, and ensuring that each transaction aligns with the organization’s policies. For modern petty cash systems that are digital, you must ensure that there are sufficient IT measures in place to avoid any kind of theft through hacking. Being able to see the closing balance helps people decide how much they should spend and where is it that they should invest the remaining funds. Without the visibility of available funds, employees may end up making decisions that are not financially sound.