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Keeping Accurate Petty Cash Accounting

An employee needs to buy some staples, and there’s no one around to authorise or write a cheque. The electrician has finished his work and needs to be paid, but the accountant has gone to lunch. You need to walk across the street and buy a $0.50 fuse – which is ridicules to issue a cheque.

In above instances and countless others, a petty cash fund is helpful.

Most small businesses find it convenient to keep a small reserve of cash on hand for such expenditures. But questions can arise about keeping track of petty cash usage and keeping the cash reserve at a consistent level while maintaining accurate purchasing records for tax purposes.

So how can we maintain accurate petty cash accounting?

To begin a petty cash account, we will write a cheque for $250, $300 or any amount, and designate the cheque to be cashed at the bank. The ledger line for the cheque should read: “Petty Cash Float” or “Petty Cash Account”. The cash should be stored securely in a cash box or drawer with access granted by approved individuals only.

A designated employee should be responsible for handling the petty cash and for recording disbursements. A backup employee should also be designated so someone is always available to disburse funds.

A journal or petty cash voucher should be placed in the cash box or drawer along with the petty cash. Each time an employee needs to reimburse or withdraw funds from the cash reserves, the person in charge should record the withdrawal, notating the following information: the withdrawal number, the date, the purpose of the cash withdrawal, receipt if the employee pays on behalf for the company and the exact amount of the cash taken.

The employee receiving the cash should sign the journal or voucher. The person in charge of the fund should also sign, authorizing the disbursement.

It’s important that every disbursement be recorded in this way. Accurate notation takes only a moment or two and results in a systematic record that can be used for tax purposes.

When the fund begins to run low, another cheque should be written and cashed at the bank, restoring the fund’s initial cash reserves. The accounting department should designate the cheque as being for the specific expenses recorded in the fund’s log since the time of the previous cheque. This effectively establishes a record of expenses for tax purposes.

If due to error or accidental omission of disbursement notation, the fund turns out to have a little extra cash or is a little short, this amount should be recorded by accounting as “Cash Fund Short” or “Cash Fund Over”–or some similar designation. If this amount is excessive, or if miscalculations occur frequently, the employee in charge of the fund should be questioned and perhaps replaced with another employee who will be more precise.

A petty cash fund serves an important function in the smooth operations of an office. It speeds up small but important purchases, and allows employees to get on with their work without undue waiting or aggravation.

Source: National Federation of Independent Business
Summarize: DKT Business Services Pte Ltd

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