Accounting

How to Complete a Petty Cash Form

Jan 05, 2021 | By Michael Whitmire

Are you wondering how to properly track a petty cash fund in your business? With the right system in place, you can keep the cash safe and the bookkeeping simple. Let’s look at what petty cash is, how to complete a petty cash form, and how to disburse and replenish petty cash so it’s always ready to go. 

What is Petty Cash?

Petty cash is cash — usually a small amount — kept by businesses for small cash transactions and cash disbursements below a certain dollar amount. The cash is kept in a locked petty cash box accessible to the department head or another trustworthy person who is responsible for the petty cash account and recording any transactions. 

Keeping petty cash on hand can make it much simpler to handle small transactions without using a company purchasing card or giving too many employees access to funds. When an employee needs cash for an approved purchase, they fill out a petty cash with the date, amount, use of the cash, and the name or initials of the person disbursing and the person using the cash.

The amount kept in petty cash should be as little as possible but still enough to cover any needed small cash payments for the month. You want it to last until the monthly replenishment when the cash balance is brought back to the predetermined level.

If you find that your balance isn’t lasting long enough, you may want to re-evaluate the size of your petty cash fund for the new fiscal year or whenever appropriate. If you have to replenish it every week, it’s not nearly as convenient.

What Is Petty Cash Used For?

Most often, petty cash is used to pay for very small purchases that need to be made sporadically and often unexpectedly. These are not your typical accounts payable that follow a predictable rhythm. If you need to tip the delivery driver for a working lunch brought to the office, send someone out for coffee, or a cash advance for a run to the nearest store to replace those dry erase markers that just dried up, petty cash can save the day.

You can either take cash from the fund to make those purchases or you can have an employee cover them out of pocket and process a payee reimbursement by having them fill out a petty cash reimbursement form along with the original receipts.

In addition to determining the amount of cash needed in the fund, you’ll also need to decide in advance how it can be used, who has access, and how an employee goes about being reimbursed.

What Is the Procedure for Petty Cash?

The day-to-day procedure for petty cash is fairly simple. Let’s look at a quick example to see how it goes:

Coach Frank Vogel has asked assistant coach Lionel Hollins to pick up some coffee and donuts on his way to a team meeting because he’ll be going past Stan’s. Lionel doesn’t carry a card from the company bank account, nor does he know the account number or routing information, so he pays for the purchase from his own pocket.

The donuts are great and the meeting goes well. After the meeting, Lionel fills out a petty cash voucher and gets reimbursed for the purchase from the petty cash fund. The holder of the petty cash box (or cash register) will take the cash out of the box to reimburse Lionel and place the voucher in the box in its place.  

But what happens once the donuts have all been eaten? Let’s look at the bookkeeping side of things for a minute. 

Let’s pretend for a moment that Lionel’s coffee and donut purchase was the month’s only use of petty cash. At the end of the month, the bookkeeper will review the contents of the petty cash box and perform a petty cash reconciliation. The reconciliation contains the cash receipt for the total amount from Stan's along with the petty cash voucher. The total cash and vouchers should equal the predetermined amount that was in the box at the beginning of the month, with no overages or shortages. If not, the box holder will need to account for what happened. 

The bookkeeper can now replenish the petty cash fund by writing a check to bring the balance back to the agreed upon amount. This transaction — as well as the replenishing of the fund — will be recorded in the general ledger as a credit to Cash and a Debit to Petty Cash.  

Conclusion

A good petty cash system makes it simple to make small purchases in the moment and to reimburse employees who need to make an out-of-pocket purchase for the company. Follow the right process and you’ll have a perfect blend of convenience and security. 

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Michael Whitmire
As CEO and Co-Founder, Mike leads FloQast’s corporate vision, strategy and execution. Prior to founding FloQast, he managed the accounting team at Cornerstone OnDemand, a SaaS company in Los Angeles. He began his career at Ernst & Young in Los Angeles where he performed public company audits, opening balance sheet audits, cash to GAAP restatements, compilation reviews, international reporting, merger and acquisition audits and SOX compliance testing. He holds a Bachelor’s degree in Accounting from Syracuse University.

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