Why Petty Cash Is Important to Small Businesses

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what is petty cash used for

Next, the amount is withdrawn from the bank to settle cash expenses. Finally, the amount withdrawn – paper money or coins – is deposited with the custodian. The petty cash custodian then issues receipts and a petty cash voucher for the required cash. The petty cashier will be responsible for the petty cash drawer and making the right accounting entries. Additionally, the petty cash custodian is also responsible for distributing the cash and collecting bills and receipts for all expenses caused by the petty cash.

Such expenses may include staff lunch, office supplies, postage, coffee, or reimbursing an employee for a miniscule company expense they covered out-of-pocket. The purpose of maintaining petty cash is the efficient and timely management of small, day-to-day operational costs, which can yield a smoother flow of https://www.bookstime.com/ business operations. This individual is responsible for the distribution of cash for minor expenditures, as well as maintaining accurate record-keeping for accounting purposes. When the petty cash fund runs low, the custodian submits a reimbursement request along with receipts which account for the cash spent.

What Is Petty Cash and What Is It Used For?

Although there can be minor variances, when unbalanced, the source of the discrepancy should be identified and corrected. 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. Tubs are responsible for approving payment requests submitted to fund new petty cash accounts before the request is routed to Central Administration for final approval.

  • If not, additional funds must be transferred from the normal business checking account.
  • It works well to cover small impromptu expenses—like a tip for the kid delivering pizzas to the lunch meeting, or cab fare home for employees working late.
  • 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.
  • Petty cash is a common form of imprest system (I.E. financial accounting system), and is a pre-designated amount that’s built into the budget and replenished after a set period of time or when it runs out.
  • This cash replacement brings the total amount of cash in the fund back up to the originally authorized amount of cash.
  • Petty Cash is an important financial term used in business, and it signifies a small amount of cash kept on hand for miscellaneous expenses.

However, it can be challenging for a business involved in multiple countries or operating across multiple offices. For larger companies, the entire process for applying petty cash and approval can be automated for better record keeping. The receipts are also maintained in the online form so ease of access and better reconciliation.

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Whenever cash is needed, or every month the petty cash custodian must summarize the petty cash log by expense account. Also, he must record a journal entry debiting each expense and crediting petty cash. If you’re ready to set up a petty cash fund for your office but aren’t sure where to begin, follow the simple steps below to have your petty cash fund operational in no time. To begin, have a secure place to store your petty cash funds, such as a lockbox or locked drawer.