Petty cash replenishment definition

Cash on hand is any accessible cash the business or liquid funds have. 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. To improve the way you handle petty cash accounting, require a petty cash receipt for each transaction. And, create a petty cash slip indicating the amount, employee’s name, and date when you give employees petty cash. When you or employees pay with petty cash, retain the receipt and attach the petty cash slip to the receipt for your records.

Even then, a petty cash fund is only appropriate if there is someone to monitor it and track the use of the money. Petty cash is a small amount of cash kept on hand to cover small, and often unexpected, expenses that pop up during a business day. You might use money from the petty cash fund to pay for minor expenses such as postage, Uber fares, or reimburse someone $10 for bringing in a box of donuts.

Petty cash transactions tend to be sporadic and inconsistent, which is why the reconciliation process can become harder than it should be.
Most companies maintain a petty cash fund balance of anywhere from $100 to $500, but the amount will depend on your petty cash needs.
The replenishment amount may change if the assigned amount of cash for a petty cash box is altered (usually resulting from an examination of petty cash usage).
Entries are needed to (1) establish the fund, (2) increase or decrease the balance of the fund (replenish the fund as cash is used), and (3) adjust for overages and shortages of cash.

A designated employee, the petty cash custodian, accounts for your business’s use of petty cash. When an employee takes money from the petty cash fund, the petty cash custodian must record who took the money, the amount taken, what the money is for, and the date. Petty cash, or petty cash fund, is a small amount of cash your business keeps on hand to pay for smaller business expenses.

For example, the Galaxy’s Best Yogurt maintains a petty cash box with a stated balance of $75 at all times. Upon review of the box, the balance is counted in the following way. 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.

How to Reconcile Petty Cash? Best Practices & Steps

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.

Each time you tap into a petty cash fund—that is, take money out—a slip or voucher should be filled out.
The reconciliation is straightforward—every time you take cash out of the box, you replace the cash with a receipt for the same amount.
The greatest degree of internal control can be maintained when a petty cash fund under the control of one individual is established to handle these expenditures.
To create a petty cash fund, a check is written to cash for a set amount such as $75 or $100.
Compare this amount to the total amount listed on your receipts to determine if your accounts are equal.

If everything adds up and you’re simply burning through petty cash regularly, evaluate your spending and look for areas to cut. For example, if you’re buying tons of office supplies week after week, maybe you should look into bulk ordering the supplies to cut down on spending. In his article for the Institute of Internal Auditors, bank auditor Umair Danka notes that there’s a significant risk of petty cash being spent on non-business activities. To combat this, make sure your employees understand upfront what petty cash can and can’t be spent on.

Occasional errors may cause the petty cash fund to be out of balance. The sum of the cash and receipts will differ from the correct Petty Cash balance. This might be the result of simple mistakes, such as math errors in making change, or perhaps someone failed to provide a receipt for an appropriate expenditure. Whatever the cause, the available cash must be brought back to the appropriate level.

Definition of Replenishing Petty Cash

To begin, debit the petty cash account and credit the cash account. In accounting software, this entry will add the petty cash check to your print checks list. Using columnar paper with a debit, credit and balance column, enter the amount of petty cash in the debit column. Note that the entry to record replenishing the fund does not credit the Petty Cash account.

How to record petty cash in accounting?

For petty cash accounting, you must create a log detailing your transactions. And, you must record a petty cash journal entry when you put money into the petty cash fund and when money leaves the fund. Consider recording petty cash transactions in your books at least once per month. 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.

The dos and don’ts of petty cash

All in all, company petty cash can be a helpful tool for keeping businesses running smoothly. Every business makes small purchases each day for items such as office supplies, stamps, shipping charges, and other miscellaneous items. Establishing a petty cash fund allows a business owner to maintain control and account for the expenditures with minimal cost and administrative hassle. If you follow a few steps, it is possible to set up and manage a petty cash account with ease. Petty cash replenishment occurs when funds are added to a petty cash box.

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Enter the amount given to the person in the credit column and ask the person to sign the log to verify she received the money. The custodian of the petty cash fund is in charge of approving and making all disbursements from the fund. These expenditures include items such as postage, delivery expense, and minor office supplies (e.g., coffee). In the upper right portion of the window, click the green New button to create a petty cash account.

To reimburse expenses, require a receipt from the employee and then provide them with the exact amount of cash and coins from the lockbox. Then, place the receipt in the lockbox and record the expense in the petty cash log by entering the date, payee, description, reference number, and amount. The second journal entry is debiting petty cash and credit cash on hand (any cash account). 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.

Therefore, it is appropriate to keep only enough petty cash available for emergency and convenience needs. Sign up to receive more well-researched small business articles and topics in your inbox, personalized for you. It should be noted that the debit to the income statement for the expenses, reduces the net income which reduces the retained earnings and therefore the equity in the business.

The term “petty cash” refers to the small cash fund a business keeps on hand to cover small emergency and unexpected expenses. The term “cash on hand” refers to all the liquid explicit and implicit costs definition and examples assets a business has. Cash on hand refers to all the money you have in your safe and in bank accounts, including the actual bills and coins you have in your petty cash fund.