Petty cash

Bookkeeping
Key concepts
Daybooks Double-entry system General ledger T Accounts Trial balance Journal Debits and credits Chart of accounts Petty cash Imprest system Bank reconciliation Ledger Single-entry system Bookkeeper Assets Liabilities Equity Income Expenses Depreciation Accruals Prepayments VAT/GST
Financial statements
Balance sheet Income statement
Related professions
Accountant Accounting technician Accounts clerk

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.^[1]

The most common way of accounting for petty cash expenditures is to use the imprest system.^[2] 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, e.g. $20 remaining, 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 of $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 audits by someone other than the custodian.^[3] 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.^[4]

References

↑ P. Hosein (29 July 1988). Principles of Accounts (Cxc). Heinemann. p. 92. ISBN 978-0-435-98309-3.
↑ Alan Trenerry (1999). Principles of Internal Control. UNSW Press. pp. 125–. ISBN 978-0-86840-401-1.
↑ Peggy M. Jackson (28 November 2006). Sarbanes-Oxley for Small Businesses: Leveraging Compliance for Maximum Advantage. John Wiley & Sons. pp. 101–. ISBN 978-0-470-05004-0.
↑ Diane Canwell; Jon Sutherland (2005). BTEC First Business. Nelson Thornes. pp. 105–. ISBN 978-0-7487-9431-7.

This article is issued from Wikipedia - version of the 10/23/2016. The text is available under the Creative Commons Attribution/Share Alike but additional terms may apply for the media files.