Petty cash is the cash that company holds for small payments settled in the office or operation. During the day, company needs to pay for some small expenses which are not practical to ask for credit from a supplier. Some businesses put $50 into their petty cash fund while others put $250—the amount of your fund depends on your business needs. Petty cash refers to a system of holding insignificant sums of funds to pay for minor expenses.

Since most petty cash purchases are for business expenses, you will likely be able to deduct them from your business’s taxes at year-end. Petty cash funds typically depend on how frequently your business makes small purchases. Before reimbursing the petty cash, record the expenses paid from the petty cash fund. The most common activity within the petty cash account is spending.

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The custodian of the fund cashes the cheque and places the coins and currency in a locked box. Responsibility for the petty cash fund should be delegated to only one person, who should be held accountable for its contents. Cash payments, supported by receipts, are made by this petty cash custodian out of the fund as required. When the amount of cash has been reduced to a pre-determined level, the receipts are compiled and submitted for entry into the accounting system. A cheque is then issued to reimburse the petty cash fund for the total amount of the receipts.

Here, the bank account will be the credit side, while the petty cash account is the debit. First, ABC needs to record expenses and staff advances which are paid by petty cash. The double journal entry is debiting taxi expense, other expenses, and staff advance. On 01 January 202X, the company has set up a petty cash balance of $ 5,000. During the month, the company has used the money to pay for taxi $ 100, other expenses $ 500, and staff advance $ 2,000 for urgent travel. The company can use expense subaccounts such as taxi expenses, office supplies, and other miscellaneous expenses.

• However, companies limit how much they can pay through this account.
• When an employee takes money from the petty cash fund, the petty cash custodian must record who took the money, the amount taken, what the money is for, and the date.
• Remember to record petty cash expenses in your accounts as journal entries.
• These are some commonly asked questions about the petty cash funds of a company.

We have shared everything about petty cash funds, their management, and how and when to reimburse the petty cash fund for any company. We hope the information has helped you clearly understand the concept of petty cash funds. Subtract the remaining funds from the month beginning to get the spent money. Any difference must be investigated and reconciled by the custodian.

Based on those transactions, the journal entry will also differ. Usually, companies use “petty cash” to denote this account in their books. While other activities may also affect it, they are a type of the above two items. Similarly, the debit and credit side of the journal entries will always include the petty cash account.

Regular reconciliation doesn’t mean only aid in management but also detects any frauds or thefts in the use of petty cash funds. Whatever the case, such expenses are unavoidable and have to be incurred. Therefore, most businesses maintain a small amount of cash on hand to meet the contingencies and the emergencies.

Journal entry for putting money into the petty cash fund

The maintenance of petty cash accounts eliminates the need to make an account for each and every expenditure. Whether small businesses or large corporations, petty cash funds are reconciled periodically for differences and transferred to financial statements. You typically evaluate your petty cash fund at the end of each month for more accurate balances.

Petty Cash Reimbursement Journal Entry Example

• Whether small businesses or large corporations, petty cash funds are reconciled periodically for differences and transferred to financial statements.
• Most companies specify the amount of money the petty cashier can allocate to a specific payment.
• This involves recording the expenses that were paid out of the petty cash and then replenishing the petty cash with the same amount.
• When the fund is replenished, the credit to Cash is for the difference between the established amount and the actual cash in the fund.
• The imprest system is an accounting system for paying out and subsequently replenishing petty cash.
• Any shortfalls may need to be replenished by the guardian of the float, usually a bookkeeper, from their own personal resources.

However, keeping significant amounts of money at hand can have some risks. Petty cash is system companies create to hold insignificant amounts of funds. It is crucial for companies as it helps them continue their operations smoothly. At the end of the month, company refills the petty cash to its float balance, $ 5,000. After reconciliation, accountant will reimburse the petty cash to its original balance which is known as the floating balance.

Establishing a dollar amount to meets your business’s petty cash needs is essential. Make sure your employees understand what the petty cash fund can or can’t be used for by creating a petty cash policy. As your business grows, you may need to re-evaluate the amount you keep in your petty cash fund. The journal entry for petty cash received from customers is as follows. However, it may differ from “cash in hand” that companies keep for other purposes.

On the other hand, they also put cash into this system through their bank account. It usually involves recording two types of transactions, payments, and receipts. Businesses follow the imprest system for managing petty cash funds.

Explain The Imprest System Petty Cash

Cash transactions are one of the most common activities within any company. Usually, these involve paying various parties or receiving cash from them.

For petty cash reconciliation, subtract the amount in your petty cash fund from the amount petty cash reimbursement journal entry stated in your books. Compare this amount to the total amount listed on your receipts to determine if your accounts are equal. Lastly, you should choose a maximum amount that employees can request for petty cash transactions. If the employee needs to spend more than the petty cash request limit, they can use the business credit card. For example, employees cannot use petty cash to buy themselves coffee.

The amount is transferred at the beginning of the month to the custodian. He makes expenses from the petty cash fund during the whole month. The companies do not wait for the complete replenishment of the fund before it’s financed again.

Any small expenses which meet the criteria will be paid using petty cash. The responsible person will keep a record of cash movement during the month. All expenses paid by petty cash must attach with supporting documents such as invoices.