As a company grows, it may find a need to increase the base size of its petty cash fund. Otherwise, take note that the only entry to the Petty Cash account occurred when the fund was established. 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.
Petty cash accounting
Adjustments must be made formally and with updated approvals if company policy requires.
Recording Overages and Shortages
Implementing these guidelines will help you handle petty cash with confidence, ensuring that your business operates smoothly without financial hiccups. Proper petty cash reimbursement journal entries play a crucial role in maintaining financial accuracy and operational efficiency. Company petty cash can be a great boon to businesses, large and small. Petty cash is a designated sum of money that is kept on hand for small, everyday expenses that may come up. Having petty cash on hand eliminates the need to constantly write cheques or use company credit cards for these small purchases. It also helps to streamline the accounting process, as all expenses are recorded in one place.
Cash Flow Statement
- Make sure your employees understand what the petty cash fund can or can’t be used for by creating a petty cash policy.
- Petty cash is a convenient alternative to writing checks for smaller transactions.
- One of the conveniences of the petty cash fund is that payments from the fund require no journal entries at the time of payment.
- The custodian is responsible for safeguarding the money and maintaining petty cash vouchers or receipts for every disbursement.
Hence, it is more efficient to just record all those expenses with the cash account directly. The second journal entry is debiting petty cash $ 400 and credit cash on hand $ 400. Company ABC uses the petty cash for the expense amount $ 400 and the remaining balance is only $ 100.
At the same time, receipts are removed from the petty cash box and formally recorded as expenses. After review and approval, the cash will transfer from bank to replenish the petty cash balance. They will record decreased cash in bank balance and increase expenses based on the actual expense. This petty cash replenishment journal entry is one of many bookkeeping entries used in accounting, discover another at the links below. The accounting records will show the following bookkeeping entries when the business withdraws cash to replenish the petty cash fund. Petty cash is a small amount of money kept on hand to cover small expenses such as office supplies or minor repairs.
Petty cash and taxes
- For petty cash accounting, you must create a log detailing your transactions.
- These entries ensure that all withdrawals and replenishments are accurately tracked, providing an audit trail for small business expenses.
- A petty cash custodian should be designated to safeguard and make payments from this fund.
- After collecting receipts from your employees, update your books to show the used petty cash.
Suppose for example a business maintains a petty cash fund of replenishing petty cash fund journal entry 300. At the end of an accounting period a count of the petty cash shows that the fund contains cash of 240 and expense vouchers for supplies of 40 and postage of 20. At the end of the month, assume the $100 petty cash fund has a balance of $6.25 in actual cash (a five-dollar bill, a one-dollar bill, and a quarter). Frank, who is the responsible person, has been filling out the voucher during the month, and all the receipts are stapled to the voucher. On the other hand, we may see that there is a cash shortage instead when we make the reconciliation of petty cash funds to the petty cash receipts. Many of your business expenses are tax deductible, including purchases made with your petty cash fund.
Additionally, it can help to build goodwill with vendors when they see that the company is prepared to do business with them on a regular basis. All in all, company petty cash can be a helpful tool for keeping businesses running smoothly. Sometimes the petty cash custodian makes errors in making change from the fund or doesn’t receive correct amounts back from users. We post the discrepancy to an account called Cash Over and Short.
The Cash Over and Short account will be used to balance the entry when the cash needed to get back to the petty cash account does not match the total of petty cash vouchers. Policies should be established regarding appropriate expenditures that can be paid from petty cash. When a disbursement is made from the fund, a receipt should be placed in the petty cash box.
How to Record the Petty Cash Replenishment
Next, let’s assume that there is only $20.00 in cash remaining and Mary realizes that $20 is not sufficient. She needs to obtain a company check for $80 in order to cash it and return the cash amount to $100 (the amount shown in the Petty Cash account). The petty cash vouchers provide the documentation for the $80 check request. In the process Mary discovers that the vouchers add up to only $79.
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