What It Is, How It’s Used and Accounted For, Examples

What Is Petty Cash?

A petty cash fund is a small amount of company cash, perpetually stored to be had (e.g., in a locked drawer or box), to pay for minor or incidental expenses, an identical to office supplies or employee reimbursements.

A petty cash fund will undergo periodic reconciliations, with transactions moreover recorded on the financial statements. In higher companies, each and every department could have its non-public petty cash fund.

Understanding Petty Cash

Petty cash provides convenience for small transactions for which issuing a check out or a corporate credit card is unreasonable or unacceptable. The small amount of cash {that a} company considers petty will vary, with many companies holding between $100 and $500 as a petty cash fund. Examples of transactions {{that a}} petty cash fund is used for include:

• Place of work supplies
• Enjoying playing cards for purchasers
• Crops
• Paying for a catered lunch for a small staff of personnel
• Reimbursing an employee for small work-related expenses

Petty cash fund custodians are appointed to oversee the fund. The custodial duties normally include enforcing petty cash regulations and laws, inquiring for replenishments, and dispensing worth vary.

Must haves for Petty Cash 

The use of a petty cash fund can circumvent positive interior controls. However, the availability of petty cash does now not indicate that it can be accessed for any serve as by the use of any individual. Many companies employ strict interior controls to keep an eye on the fund. Ceaselessly, a few people are authorized to approve disbursements and can best possible do so for expenses related to original company movements or operations.

A petty cashier may well be assigned to issue the check out to fund the petty cash drawer and make the proper accounting entries. The petty cash custodian is charged with distributing the cash and gathering receipts for all purchases or any uses of the fee vary. Since the petty cash total declines, the receipts should increase and add up to the entire amount withdrawn.

By way of having a petty cash cashier and a petty cash custodian, the dual-process helps to keep the fee vary secure and be sure that best possible those authorized have get right of entry to to it.

Recording Petty Cash

When a petty cash fund is in use, petty cash transactions are nevertheless recorded on financial statements. No accounting mag entries are made when purchases are made using petty cash, it’s best possible when the custodian needs more money—and in exchange for the receipts, receives new worth vary—that the mag entries are recorded. The mag get admission to for giving the custodian more money is a debit to the petty cash fund and a credit score rating to cash.

If there’s a shortage or overage, {a magazine} line get admission to is recorded to an over/fast account. If the petty cash fund is over, a credit score rating is entered to represent a achieve. If the petty cash fund is short, a debit is entered to represent a loss. The over or fast account is used to force-balance the fund upon reconciliation.

Reconciling Petty Cash

The petty cash fund is reconciled periodically to be sure that the stability of the fund is correct. Most often, for the reason that petty cash balance falls to a preset level, the custodian applies for more cash from the cashier. These days, the entire of the entire receipts is calculated to be sure that it fits the dispensed worth vary from the petty cash drawer. If new worth vary are sought after, the cashier writes a brand spanking new check out to fund the petty cash drawer and takes, in exchange, the receipts from the purchases that depleted the cash.

The reconciliation activity promises that the fund’s final balance equals the variation between the original balance minus charges detailed on receipts and invoices. If the rest balance is less than what it should be, there is a shortage. If the rest balance is larger than what it should be, there is an overage. Even if there can be minor variances, when unbalanced, the availability of the discrepancy should be known and corrected.

Petty Cash vs. Cash on Hand

“Petty cash” and “cash to be had” sound such a lot alike, they typically do overlap. Of the two, “cash to be had” is the additional generic period of time.

Petty cash refers in particular to money—if truth be told, money and bills—{that a} company keeps to be had for small outlays, normally on account of using cash is more straightforward than using a check out or credit card.

Cash to be had is any accessible cash the industry or liquid worth vary have. It can be inside of the kind of precise money, like amounts you haven’t however deposited throughout the monetary establishment or smaller bills and money that you simply keep throughout the cash check in to make exchange for purchasers. In this this means that, the variation from petty cash refers back to the position you could be holding the money, and the way in which you could be using it—with petty cash being further for interior industry needs/expenses by the use of personnel, and cash in hand in relation to worth vary won from or being reimbursed to shoppers.

On the other hand cash to be had has a larger this means that, as an accounting period of time. Throughout the financial international, it moreover refers to a company’s extraordinarily liquid assets—worth vary in checking or other monetary establishment accounts, money market worth vary, short-term debt equipment, or other cash equivalents. Even if not if truth be told cash, it’s money that can be merely and briefly accessed, which is why it’s “to be had.”

In brief: All petty cash is one of those cash to be had, on the other hand not cash to be had is petty cash.

Advantages and Disadvantages of Petty Cash

Petty cash has its pluses. Cash, in a number of cases, remains the quickest, most simple, best possible technique to pay for problems. It in point of fact works neatly to cover small impromptu expenses—like a tip for the kid delivering pizzas to the lunch meeting, or cab fare space for personnel working overdue. It saves the difficulty of reimbursing other folks or expecting them to pay out-of-pocket for work-related items.

Petty cash can also artwork for well-liked on the other hand mundane expenses, like milk for the office fridge, stamps, or cleaning supplies.

While it will have to now not be a routine observe, petty cash in a pinch can be used to make exchange for purchasers, if the till’s running fast.

On the downside, the benefit of petty cash can also make it a subject, and an opportunity. Cash is hard to secure and unimaginable to track; it’s in point of fact simple for bills to fade and not using a trace—despite the fact that you could have established a wary tool of receipts or vouchers.

This brings us to a couple different problem of petty cash worth vary: Maintaining them, holding information, and reconciling them ceaselessly, all include further artwork for somebody. This is a minor nuisance in large firms with an office manager or accounting department; for small firms, it could create a burden.

Trade transactions are an increasing number of cashless—even at small stores and consuming puts, where purchases traditionally have relied carefully on money. Petty cash has turn out to be an outdated idea, some critics say. In between credit cards, debit enjoying playing cards, price services and products and merchandise like Venmo or Paypal, virtual wallets, and other contactless ways to buy problems, somewhat a couple of alternatives exist simple as cash—with the added advantages of being traceable, secure, and not more topic to theft.

The security aspect is perpetually essential to small companies, who have long feared that holding cash spherical is an invitation to crime.

Petty Cash FAQs

What Is Petty Cash and What Is It Used For?

Petty cash is the money {{that a}} industry or company keeps to be had to make small expenses, purchases, and reimbursements. Each routine or sudden, the ones are transactions for which writing a check out or using a credit card is impractical or inconvenient.

Why Is It Known as Petty Cash?

The English word “petty” derives from the French petit, which means “small” or “little.” Likewise, “petty” manner minor or insignificant. So petty cash refers to a small sum of money set aside for trifling or little purchases, as opposed to primary expenses or bills.

One of the earliest uses of the phrase comes from an educational artwork on house responsibilities by the use of Benjamin Billingsley, Advice to the women and maidens of London, that dates to 1678.

What Is an Example of Petty Cash?

Petty cash is normally stored in a drawer, lockbox, or large envelope. Typical petty cash purchases include:

• Coffee, candy, or snacks
• Crops, birthday enjoying playing cards, or other small gifts
• Cab fare or automotive fare
• Small office supplies—pens, erasers, staplers, and so forth.
• Catered meals

Is Petty Cash a Cash An equivalent?

No. Petty cash is precise cash money: bills and money. Cash equivalents are extraordinarily liquid securities and other assets that can be merely reworked into cash: money market worth vary, industry paper, or short-term debt, like Treasury bills.

However, on corporation financial statements, petty cash is listed throughout the “Cash and cash equivalents” phase of the stability sheet. So the two can be lumped together in that sense.

How Do You Balance Petty Cash in Accounting?

Every time you tap proper right into a petty cash fund—that is, take money out—a slip or voucher should be filled out. This acts as a receipt, logging the quantity of the withdrawal, the date, the purpose, and other details. Increasingly, the ones slips are virtual ones, entered in a digital spreadsheet or ledger. On the other hand it can be helpful to stick paper slips too, in conjunction with receipts from the purchases or expenses (if possible).

After a delegated length—normally, the identical time each and every month or week—it’s time to reconcile or balance the petty fund account. First, apply the prevailing amount throughout the fund. Then, subtract this amount from the start balance. This sum is the entire withdrawn from the account during that time period.

Next, total the quantity of all the outstanding slips (plus hooked up receipts). This decide should be the identical for the reason that withdrawn sum you calculated from the account starting and completing balances. And the amount of cash you must have to your storage box or drawer should be the identical as the prevailing balance of the account.

Within the match that they don’t have compatibility, you’ll have to analyze why: was once as soon as there a mathematical error? is a receipt missing or fallacious?  

Balancing the petty cash account normally occurs when the fund should be replenished. The petty cash custodian brings all the slips or vouchers to the industry’ bookkeeper, cashier, or accountant. The petty cash receipts are logged into the company’s Fundamental Ledger as credit score to the petty cash account, and virtually indubitably debits to a variety of different expense accounts. When the petty fund is replenished, normally by the use of drawing on a company-issued check out, it’s recorded as a debit to the petty cash account and a credit score rating to the cash account.

The Bottom Line

Petty cash is a small amount of cash that is stored on a industry or company’s premises to pay for minor expenses and wishes—normally, no quite a lot of hundred greenbacks. While it’s easy to snatch and simple to use, petty cash is topic to abuse, easy to lose apply of, and at risk of theft. Some in point of fact really feel that all over recent society, the petty cash fund is outdated: somewhat a couple of alternatives exist for small purchases which can be extra protected and easily as at hand.