Petty Cash Accounting Journal Entries Video & Lesson Transcript

Petty cash is usually operated on an “imprest” system where an employee is tasked with maintaining and keeping track of petty cash. Once approval is received to increase your petty cash/cash drawer, complete a DV, payment reason “Z”, for the additional funds using the employee record instead of the Petty Cash Vendor record. The petty cash object code for this transaction is petty cash or cash drawer. The Petty Cash Accounting Journal Template, the cash box, and all petty cash transactions should be maintained by the Cashier. The petty cash fund will be set up in the amount of $100.00 for authorized out-of-pocket expenses and advances for minor business expenses.

• Any discrepancy should be debited or credited to an account called Cash Over and Short.
• The first method involves writing ‘checks’ to specific vendors with expense accounts.
• In the event that all of the cash in the account is used before the end of the established time period, it can be replenished in the same way at any time more cash is needed.
• As stated above, the petty cash account may include different types of transactions.
• When there are no discrepancies, the Controller will approve the Petty Cash Journal Template and the check request for replenishment.

Commercial transactions are increasingly cashless—even at small retailers and restaurants, where purchases traditionally have relied heavily on coins. By having a petty cash cashier and a petty cash custodian, the dual-process helps to keep the funds secure and ensure that only those authorized have access to it. The use of a petty cash fund can circumvent certain internal controls.

How To Set Up and Manage a Petty Cash Account

DebitDebit represents either an increase in a company’s expenses or a decline in its revenue. When such a petty amount is utilized to settle expenses, it needs to be replenished. Go back to the Chart of Accounts screen and look for Petty Cash Account. On the far right of the column, click View Register to arrive at the petty cash register.

The Controller should audit the paperwork submitted by the Cashier and resolve any discrepancies. When there are no discrepancies, the Controller will approve the Petty Cash Journal Template and the check request for replenishment. The Controller should issue a check in the amount of the reimbursement to the Cashier, who is responsible for cashing the reimbursement check at the company’s bank in order to replenish the cash box. However, it may differ from “cash in hand” that companies keep for other purposes. Nonetheless, the accounting for both items is similar since they involve spending or receiving money. However, most companies have transferred these transactions to their banks. However, companies still need cash at hand to handle various transactions.

Demonstration of Typical Petty Cash Journal Entries

The use of petty cash is only appropriate for small, erratic expenses that pop up unexpectedly. Even then, a petty cash fund is only appropriate if there is someone to monitor it and track the use of the money. At the completion of each sales day, the cash drawer needs to reconcile. The amount in the cash drawer needs to equal the balance that it was established with.

• To record expenses paid for out of petty cash and to record the transfer of cash from the checking account to the petty cash fund.
• Eric Gerard Ruiz is an accounting and bookkeeping expert for Fit Small Business.
• Replenishing petty cash requires a journal entry just like the original journal entry that established the petty cash account.
• To set up a petty cash fund, the cashier creates a check in the amount of the funding assigned to a particular petty cash fund .
• Your petty cash records might be inaccurate due to employee theft or accounting errors.

Here is a video of the petty cash process and then we will review the steps in detail. If the balance in the petty cash account is supposed to be $75, then the petty cash box should contain $45 in signed receipts and $30 in cash. Assume that when the box is counted, there are $45 in receipts and $25 in cash. In this case, the petty cash balance is $70, when it should be $75. This creates a $5 shortage that needs to be replaced from the checking account. Typically, petty cash accounts are reimbursed at a fixed time period.

Master the Basics of Petty Cash Accounting

Policies should be established regarding appropriate expenditures that can be paid from petty cash. When a disbursement is made from the fund, a receipt should be placed in the petty cash box. The receipt should set forth the amount and nature of expenditure. At any point in time, the receipts plus the remaining cash should equal the balance of the petty cash fund (i.e., the amount of cash originally placed in the fund). When your petty cash cashier puts money into the petty cash fund, they must create a journal entry in your books. The entry must show an increase in your Petty Cash account and a decrease in your Cash account. To show this, debit your Petty Cash account and credit your Cash account.

You might debit multiple accounts, depending on how often you update your books for petty cash accounting. You must also create journal entries showing what petty cash funds go toward. 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.

How to Do a Petty Cash Reconciliation

Count the cash remaining in the lock box and add up the receipts. The cash and receipts should equal the opening value in petty cash. If the difference is still there, do not panic; it is common for petty cash to be off by a couple of dollars or less. If the difference is significant, use the log to try to find it. Most companies specify the amount of money the petty cashier can allocate to a specific payment. If an item exceeds that amount, companies deal with the reimbursement through other means.

For example, if you find that your business spends $250 on small expenditures per week, you may want to set your petty cash fund for the same amount or maybe a larger amount. To reiterate, a petty cash fund is a small amount of cash that is set aside to pay for small expenditures. This article is made to teach https://www.bookstime.com/ you the basics of petty cash accounting. A petty cash fund is a small amount of a business’s cash that it uses to pay for small expenditures. A monitoring and tracking system, with receipts, should be used for the petty cash fund. Do you need to stop and grab donuts for this morning’s staff meeting?

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• While other activities may also affect it, they are a type of the above two items.
• The answer to how to record the journal entry for petty cash is not straightforward.
• In any given month, a custodian will make various disbursements from the petty cash fund.
• The balance in the petty cash account should now be the same as the amount at which it started.
• A petty cash custodian should be designated to safeguard and make payments from this fund.
• A sidebar window where you can create a new account will appear.
• Petty cash is a nominal amount of money readily accessible for paying expenses too small to merit writing a check or using a credit card.