Okay, I assume we are all on the same page now and we have our petty cash set up and ready to go. Now that you have a good working system in place you need to make sure it is properly managed so the petty cash account will work for you and not against you.
Replenishing the fund. The accounting clerk needs to replenish the amount of cash in the petty cash fund whenever the fund balance reaches a predetermined minimum. The custodian should start a new log each time the fund is replenished. To initiate the replenishment process, the custodian gives the completed list of expenditures along with labeled receipts to the designated accounting clerk. The clerk then checks over the receipts to make sure the receipt totals equal the amount spent from the petty cash fund and writes a check to the custodian for the amount spent to replenish the fund.
The custodian then cashes the check and deposits the funds in the petty cash box, restoring the beginning balance of the petty cash fund.
The amount of money in the petty cash fund can be altered based on use. If this account is not being used very often, it might not need to be replenished as often. It is best practice to replenish the account monthly to keep track of expenditures and keep this account up to date.
If, on the other hand, your business consistently needs more money in the petty cash fund, the amount can be increased at any time. Make sure changes are documented with the accounting clerk as well as the custodian. The same process described above is then followed with the new amount.
2. Account for the petty cash transactions. The petty cash custodian takes the completed list of transactions along with the receipts to the accounting clerk. The accounting clerk then double checks that there is a receipt to match each transaction.
It is very important that the total of the receipt value plus the present fund balance equal the total that was deposited in the petty cash fund. For example: If the petty cash fund started at $100 and has reached $10, then you should have receipts that are valued at $90 total. If these numbers do not match, then there was an expense that was not accounted for. The missing receipt must then be found.
The receipts are then sorted into appropriate categories and the receipt total for each category is calculated. There is no need to list each transaction individually. Log them as complete sums under each category. Some common categories that might be included in petty cash expenses are postage, transportation, and office supplies.
3. Log the expenditures. After sorting and totaling the receipts in each of the expense categories, the accounting clerk should properly record the expenses associated with the petty cash receipts.
He should credit the cash account first for the total amount of the reimbursement to petty cash, which reduces the balance of the main cash account by the same amount.
He should then debit the individual expense accounts for the sums spent in each. The total debit in the expense accounts will equal the credit of the petty cash account.
For example, if you have $200 in petty cash receipts, you need to record amounts in the appropriate expense accounts that total $200. If all the $200 were "office expenses," you would debit the office expense account $200.
The accounts for each type of expense will increase by the amount spent in each category to show that the company spent that much on those items. Then, the net income of the company will decrease by the amount spent on the expense statement.
This may seem like a lot of information for a seemingly insignificant account in the life of your business. The petty cash account, while it is intended to handle several small expenses, can add up to be a big headache if not properly managed. The more you work on your business setup and systems, the better your business will work for you. I hope you found this helpful. Please send any questions my way.