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Liquid cash or cash in hand means available cash or current assets held by the company. It can be real money, such as the amount undeposited in your bank yet, or small banknotes or coins you keep until you change it for your customers. In this sense, the difference between petty cash is where you store your money and how you spend it.

Understanding petty cash accounting

• You’ll want to outline which expenses are approved for petty cash use and set clear limits on the amount that can be spent per transaction.
• The bottom portion of the petty cash log won’t be completed until the cash in the lockbox needs to be replenished.
• While the actual funding should be recorded, the individual purchases do not need to be officially recorded.
• At the end of the week or month, the amount of all receipts is totaled, and that sum is entered in the ledger.
• Petty cash, while seemingly simple, demands meticulous management to ensure financial accuracy and prevent fraud.
• Companies prefer to buy small amounts of cash onsite because the cost of creating, signing and processing cheques is time-consuming.

Lastly, you must regularly review and reconcile your petty cash funds, so you can ensure that the money spent is always repaid. Be sure to investigate and review any discrepancies as soon as they are discovered. Regular reconciling petty funds enables you to avoid unauthorised use and inefficiencies. Tune the quantity you’ve got last inside the fund to reconcile petty coins. Subtract this quantity from the beginning stability to decide the amount withdrawn.

Why do I need a properly set up petty cash fund?

This makes it easier to track expenses and prepare accurate financial statements. Petty cash is a small amount of money a business keeps to cover minor expenses. These unexpected expenses occur daily, such as buying stamps, paying for a taxi ride, or purchasing small office supplies. Petty cash is often managed by an employee or a designated petty cash custodian responsible for the cash and ensuring it is used appropriately. Petty cash is a current asset listed as a debit on the balance sheet.

Petty Cash Reconciliation and Top-Ups

Independent checks and reconciliations of the petty cash fund should be performed frequently to counter this risk. The business would then need to appoint a trustworthy petty cash employee as the petty cash custodian. Petty cash is a small amount of money that is set aside by a company for day-to-day business-related purchases.

Grow and Improve Your Business With QuickBooks Software!

You (or your petty cash cashier) must also create journal entries showing what petty cash funds go toward. Your petty cash custodian should be the only employee distributing petty cash. Your petty cash custodian determines if the expense is appropriate according to your business’s petty cash policy.Petty cash is considered a highly liquid asset. Consider keeping your petty cash locked in a drawer, safe, or filing cabinet. After entering all expenses, it’s time to record the replenishment.

• The most basic internal controls involve removing cash from the business premises.
• However, the convenience of petty cash can also be its Achilles’ heel.
• As the cost of writing, signing, and processing the checks take a lot of time, companies prefer paying in cash on the spot for a smaller amount.
• The magic happens when our intuitive software and real, human support come together.

• To facilitate transparent reimbursement, attach the corresponding proof of purchase to the voucher post-expenditure.
• Every single petty cash transaction must be meticulously documented.
• If the employee needs to spend more than the petty cash request limit, they can use the business credit card.
• This liquid fund ensures business continuity for minor business expenses, preventing delays and maintaining smooth operations.
• For slightly larger small businesses, this might be your office administrator.

Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching. After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career. It might be tempting to wing it for as long as you can, but setting up a proper petty cash system early is crucial. Our intuitive software automates the busywork with powerful tools and features designed to help you simplify your financial management and make informed business decisions. At the end of the first month, during month-end close, the accountant counts the cash and adds up the receipts. In the spirit of reconciliation, Weel respectfully acknowledges the Traditional Custodians of country throughout Australia and their connections to land, sea and community.