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The petty cash custodian is the person accountable for the petty cash fund. They’ll be in charge of handling and disbursing petty cash and ensuring that the petty cash fund is used for its intended purpose. They’re also responsible for the safekeeping of the physical cash and possess the key to the lockbox where the cash and receipts are kept. To illustrate, we will close the $100 original petty cash fund by returning the cash to the checking account with a debit to cash and a credit to petty cash. After the check is cashed, the petty cash custodian normally places the money in a small box that can be locked. We will not use the petty cash in a journal entry again unless we are changing this original amount.
- The second journal entry is debiting petty cash $ 400 and credit cash on hand $ 400.
- All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
- They’ll be in charge of handling and disbursing petty cash and ensuring that the petty cash fund is used for its intended purpose.
- By combining the journal entries, Petty Cash isn’t adjusted and the expenses are recorded coming directly from the checking account.
The replenish will move the cash from other accounts to the petty cash account. At the same time, it records the amount of petty cash that is used to pay for small expenses. Add up the total expenditure listed on each petty cash voucher in the petty cash fund (the information can also come from the petty cash book).
Access Petty Cash Replenishment Module
Hence, the sum of all receipts plus the ending balance should be equal to the petty cash of $500. Since Heather is running out of cash, she may ask for replenishment. Before going to the cashier, she should first complete the bottom of the petty cash log.
- One asset is increasing, while another asset is decreasing by the same account.
- As a company grows, it may find a need to increase the base size of its petty cash fund.
- The important thing is to monitor your petty cash and keep track of it on a ledger.
- At the end of July, in the petty cash box there should be a receipt for the postage stamp purchase, a receipt for the milk, a receipt for the window cleaner, and the remaining cash.
- When petty cash is distributed in exchange for receipts or vouchers, the amount of cash in a location declines.
- Many of your business expenses are tax deductible, including purchases made with your petty cash fund.
A petty cash fund provides an efficient way of handling these payments. For example, a retailer will compare daily cash sales to the actual cash found in the cash register drawers. If a surplus or shortage is discovered, the difference will be recorded in Cash Short (Over); a debit balance indicates a shortage (expense), while a credit represents an overage (revenue). Next, let’s assume that there is only $20.00 in cash remaining and Mary realizes that $20 is not sufficient.
Complete Transaction Lines
The Cash Over and Short account can be either an expense (short) or a revenue (over), depending on whether it has a debit or credit balance. A petty cash custodian should be designated to safeguard and make payments what is a voided check: when and how to void a check from this fund. At the time the fund is established, the following journal entry is needed. This journal entry, in essence, subdivides the petty cash portion of available funds into a separate account.
Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.
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This creates a $5 shortage that needs to be replaced from the checking account. Balancing the petty cash account usually occurs when the fund needs to be replenished. The petty cash custodian brings all the slips or vouchers to the business’ bookkeeper, cashier, or accountant.
After entering all expenses, it’s time to record the replenishment. First, click Add Deposit then fill out all the required information. Heather needs a $315 reimbursement to bring the petty cash balance back to $500. Petty cash is used for buying supplies, postage, snacks for employees, and other small business expenses. When petty cash is expended, the employee must provide a receipt and explain the purpose of the purchase. Petty cash can be a convenient way for businesses to handle small expenses, but it is important to keep track of all expenditures to avoid overspending.
Increasing the Base Fund
Normally, the main purpose of a petty cash fund is to provide business units with sufficient cash to cover minor expenditures. Your petty cash records might be inaccurate due to employee theft or accounting errors. As your business grows, you may need to re-evaluate the amount you keep in your petty cash fund. Most businesses will reserve enough cash in their fund to meet their monthly needs.
When a petty cash fund is in use, petty cash transactions are still recorded on financial statements. The journal entry for giving the custodian more cash is a debit to the petty cash fund and a credit to cash. Typically, petty cash accounts are reimbursed at a fixed time period. Many small businesses will do this monthly, which ensures that the expenses are recognized within the proper accounting period. In the event that all of the cash in the account is used before the end of the established time period, it can be replenished in the same way at any time more cash is needed.
Do: require employees to account for expenses
There’s no need to make journal entries when expenses are reimbursed from cash in the lockbox. First of all, there is always the potential for theft or misappropriation of funds. If the petty cash is not properly secured, it could be easy for someone with ill intentions to take the money. If receipts are not properly tracked and filed, it can be difficult to account for all of the expenses. This can lead to problems down the road, especially if an audit is conducted.
Petty cash funds typically depend on how frequently your business makes small purchases. In a simple system, all petty cash expenditures are documented as they happen. The total of these costs is added to the petty cash account monthly, and the monthly amount is entered into the General Ledger as an expense. In any given month, a custodian will make various disbursements from the petty cash fund. The reconciliation process ensures that the fund’s remaining balance equals the difference between the original balance minus charges detailed on receipts and invoices. If the remaining balance is less than what it should be, there is a shortage.
It can be in the form of actual money, like amounts you haven’t yet deposited in the bank or smaller bills and coins that you keep in the cash register to make change for customers. When there is a shortage of cash, we record the shortage as a “debit” and this has the same effect as an expense. If we have an overage of cash, we record the overage as a credit, and this has the same impact as if we are recording revenue. If there were cash overage, the petty cash account would be debited and the cash over and short account would be credited. In this case, the expense balance decreases, and the year-end balance is the net balance from all overages and shortages during the year. As cash is spent from a petty cash fund, it is replaced with a receipt of the purchase.
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