How to Maintain a Petty Cash Fund (2024)

FAQs

How to Maintain a Petty Cash Fund? ›

Petty cash rules entail designating a custodian responsible for fund management, setting a limit for disbursem*nts, requiring receipts for all expenses, and conducting regular reconciliations. And, petty cash usage should be restricted to authorized business-related expenses only.

Set Clear Guidelines: Establish clear guidelines on the purpose and usage of petty cash. Communicate these guidelines to all employees accessing the fund to avoid misuse and ensure consistency. Define Spending Limits: Determine spending limits for individual transactions so that the funds are not exhausted quickly.

Petty cash funds should be kept in a locked smooth-finish metal moneybox with lock and keys or a locked moneybag.

Petty cash rules entail designating a custodian responsible for fund management, setting a limit for disbursem*nts, requiring receipts for all expenses, and conducting regular reconciliations. And, petty cash usage should be restricted to authorized business-related expenses only.

Petty cash funds should be maintained on the imprest basis at the minimum effective amount. One individual should be responsible for the fund and should maintain sole control over it. Back-up, dual control access to the fund should be available in the event of an emergency.

Any transactions made into or out of petty cash need to be recorded on the petty cash log. It's also important that any money disbursed out of the petty cash fund have a receipt. For example, for Jane to get reimbursed for the donuts she purchased for the meeting, she needs to provide a receipt.

General Information on Petty Cash

Purchases with Petty Cash are limited to $100 per vendor per day. A Petty Cash fund should be replenished either monthly or when accumulated receipts total $200 – whichever occurs first. The types of purchases allowed to be made with a Petty Cash fund are extremely limited (see below).

What are the two types of petty cash? ›

There are two types of petty cash books. They are: Columnar petty cash book. Imprest petty cash book.

Petty cash should be reconciled and replenished on a regular basis, such as monthly or quarterly. This involves comparing the cash balance with the total value of receipts to account for all expenses and ensure that the fund always has the proper amount to cover future transactions.

For petty cash accounting, you must create a log detailing your transactions. And, you must record a petty cash journal entry when you put money into the petty cash fund and when money leaves the fund. Consider recording petty cash transactions in your books at least once per month.

Ensuring Transparency and Accountability

Regular reconciliation of the petty cash fund is essential. The total of the cash remaining and the receipts should always equal the original imprest amount. This process helps prevent misuse and ensures that all expenses are accurately recorded and accounted for.

Recording in a Cash Book

All cash receipts are recorded on the left-hand side as a debit, and all cash payments are recorded by date on the right-hand side as a credit. The difference between the left and right sides shows the balance of cash on hand, which should be a net debit balance if cash flow is positive.

Typically, as the petty cash balance falls to a preset level, the custodian applies for additional cash from the cashier. At this time, the total of all of the receipts is calculated to ensure that it matches the disbursed funds from the petty cash drawer.

All Petty Cash Funds must be stored in a secured device such as a safe or cash box in a locked cabinet. Only the Petty Cash Fund custodian should have keys to the box and cabinet. Funds should never be left unattended and unsecured. Funds within a box need to be locked and behind locked doors when not attended.