Petty Cash Creating, Disbursement, Replenishing, Journal Entry

When disbursing cash from the fund, the petty cash custodian prepares a petty cash voucher, which should be signed by the person receiving the funds. A petty cash voucher is a document or form that shows the amount of and reason for a petty cash disbursement. There are different ways of tracking transactions in a petty https://www.bookstime.com/ cash book. Some organizations use a separate cash register for the petty cash, and others just track the transactions on ordinary receipts or invoices. How you track your costs does not matter as long as it is consistent. The entry to record the reimbursement would debit the expense accounts reported by the custodian.

The totals in the journal are then used as the basis for a journal entry into a company’s general ledger. This journal entry lists petty cash expenditures by expense type. A typical petty cash journal is a preprinted form, perhaps one purchased from an office supply store. From left to right, it typically contains a row in which to enter a voucher number, the voucher date, and the total amount of expenditure itemized on the voucher. The form then continues with a number of additional columns for common expenses, such as supplies, meals, postage, and travel expenses. As we have discussed, one of the hardest assets to control within any organization is cash.

What is the Petty Cash Journal?

Usually, these are the only items that impact the petty cash account. On top of that, some companies may also offer temporary loans to employees for small amounts. This transaction also involves spending from the petty cash account.

Upon review of the box, the balance is counted in the following way. Companies use the petty cash system to track expenses paid from the cash in hand account. On top of that, it also records the amounts received into that account. However, other regulations may also dictate if companies can use petty cash to settle a transaction. For example, some countries require companies to use bank accounts for transactions above a specific amount.

4 Define the Purpose and Use of a Petty Cash Fund, and Prepare Petty Cash Journal Entries

In the last column of the Cash ledger account is the running balance. This shows where the account stands after each transaction, as well as the final balance in the account. How do we know on which side, debit or credit, to input each of these balances? It is a good idea to familiarize yourself with the type of information companies report each year. Peruse Best Buy’s 2017 annual report to learn more about Best Buy.

The bottom portion of the petty cash log won’t be completed until the cash in the lockbox needs to be replenished. There’s no need to make journal entries when expenses are reimbursed from cash in the lockbox. The most common activity within the petty cash account is spending. Companies may also allocate petty cash budgets to various departments. Consequently, they can manage their petty cash funds more smoothly. When accounting for those funds, companies must reconcile different departments’ balances.

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However, companies must also identify the source for that transaction. Usually, it includes reimbursing the petty cash balance through the bank account. I explain both, along with the journal entries in this chat.If possible, it is best to NOT have petty cash a
petty cash fund as it is so easily abused. A better alternative is to
have employees submit expense reports for reimbursement or issue company
credit cards with limits. Cash on hand is any accessible cash the business or liquid funds have.

During the month, the cashier summary the report, and the total expense is $ 800 and the remaining balance $ 200. So she prepares to replenish report to claim $800 from the accounting department. After reviewed, management approves and agrees to withdraw $800 from bank to refill the petty cash balance.

The amount kept in a petty cash fund varies for each business. Petty cash funds typically depend on how frequently your business makes small purchases. Here is another template which also useful for accountants to control their petty cash balance. To maintain internal controls, managers can use a petty cash receipt (Figure 8.5), which tracks the use of the cash and requires a signature from the manager. Petty cash is a system where companies keep cash on hand to pay daily expenses.

Companies maintain a petty cash system to handle any money kept on hand. Usually, companies use an imprest system to manage that cash. Before discussing its accounting, it is crucial to understand the concept first. Usually, they top up this account regularly through various sources. Usually, it involves recording receipts or spending from the account.

Why Is It Called Petty Cash?

In the debit column for this cash account, we see that the total is $32,300 (20,000 + 4,000 + 2,800 + 5,500). The credit column totals $7,500 (300 + 100 + 3,500 + 3,600). The difference between the debit and credit totals is $24,800 (32,300 – 7,500). Having a debit balance in the Cash account is the normal balance for that account. Common Stock had a credit of $20,000 in the journal entry, and that information is transferred to the general ledger account in the credit column. The balance at that time in the Common Stock ledger account is $20,000.

• This is posted to the Unearned Revenue T-account on the credit side.
• When you put money into the fund, you must create a journal entry debiting your Petty Cash account and crediting your Cash account.
• The company used this transaction to restore that account to its designated limit.
• A petty cash fund is a small fund whose purpose is to make small disbursements of cash.
• Hence, the sum of all receipts plus the ending balance should be equal to the petty cash of $500.
• The difference between the debit and credit totals is $24,800 (32,300 – 7,500).
• Many small businesses will do this monthly, which ensures that the expenses are recognized within the proper accounting period.