This cash replacement brings the total amount of cash in the fund back up to the originally authorized amount of cash. Petty cash or a petty cash fund is a small amount of money available for paying small expenses without writing a check. Petty Cash is also the title of the general ledger current asset account that reports the amount of the company’s petty cash.<\/p>\n
This is the first entry in your petty cash account, represented by the following journal entry that shows petty cash leaving your bank account. Petty cash can be used to avoid the considerably more cumbersome check authorization, printing, and signing process. Instead, petty cash payments are quick and easy, where the petty cash custodian merely has to hand over a small amount of cash to complete a payment transaction. Reconciliation of the petty cash fund should be done periodically to ensure that the fund\u2019s balance is correct. It\u2019s important to account for petty cash uses in your general ledger because it is an expense recorded in your financial records, like the balance sheet.<\/p>\n
You set your own rules about which expenses can be reimbursed and how much the petty cash account can cover. Initially, you may need to adjust the petty cash fund amount you\u2019ve selected as a cap; over time, you\u2019ll figure out the best level to set it at. In reality, the balance in the petty cash account is higher than the amount of cash actually in the petty cash box, since the cash in the box is continually being paid out. However, the difference is so minor that it is completely immaterial to the results in the financial statements. Thus, the difference is only reconciled when the petty cash box must be replenished. Your available cash should always match the amount recorded in your petty cash log.<\/p>\n
Because a petty cash voucher is made out for all disbursements, the total of the vouchers and the remaining cash should always equal the amount of the fund (in this case, $100). To create a petty cash fund, a check is written to cash for a set amount such as $75 or $100. All these details are usually completed through a petty cash voucher\/worksheet.<\/p>\n
Examples of these payments are office supplies, cards, flowers, and so forth. The use of petty cash can be an effective way to keep minor items from bogging down the accounts payable system. Commercial transactions are increasingly cashless\u2014even at small retailers and restaurants, where purchases traditionally have relied heavily on coins.<\/p>\n
Obviously, companies don\u2019t want lots of cash just sitting around in the office. The amounts vary between companies but may be anywhere from $50 to $500. This amount is usually spent over a period of a month or two, and is replenished when necessary.<\/p>\n