What is Petty Cash
How to introduce a Petty cash account to your business
If you run a small business then you will find that there is a need to use petty cash; this is the money that is withdrawn from the bank account and used to buy small everyday essential items like milk and tea or coffee and biscuits, stationery and postage. Your business should have procedures in place that relate to the handling of petty cash, and keep a ledger current with deductions made from it.
This could be in a notebook or on a computer spreadsheet. If authorization is needed it would be advisable to have it computerized so you can print of an authorization slip for signing as needed.
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A voucher is used as a detailed record whenever some money is withdrawn. The voucher would have to show the following information:
- Details of the transaction, include as much information as possible
- Total amount that is withdrawn
- Attach any receipts to the voucher
- A voucher number that is unique.
- Date on which the money was withdrawn
When the receipt is returned with the change, you should double check that the amounts add up at that stage to avoid confusion later on. Larger businesses might use a form with smaller businesses tending to keep a ledger. Procedures will be put in place and ensure that staff are made aware of them.
You should use a locked box and make sure that only the necessary people know where the box and key are stored. You must choose an appropriate amount to put in to your float. This canl vary from business to business, but most businesses will keep a float of £100. This amount will need to be withdrawn from the bank as petty cash. Put the petty cash money in the box and record your transaction in either a book or in an Excel template. Whenever any money is withdrawn from the petty cash box, they must fill out a form or voucher. The money in the box plus the vouchers should always equal the original amount of money in the box. If you have a £100 float and the vouchers, add up to £70 you should have £30 remaining in the box.
Petty Cash Reconciliation
You will need to complete reconciliation on a regular basis; this will allow you to make sure that money is not missing and that the deduction vouchers are correct. The reconciliation should be done regularly, either weekly or monthly.
You will look to have an opening balance for your petty cash, add all the money added and then deduct all the expenses. The balance should equal the money remaining. You should then record all of the vouchers and money that is received in a book or an Excel template. The vouchers should then be filed in date order and kept as part of your accounting records. If you are using bookkeeping software, record the totals and all figures in your accounts. The balance in your accounts should always equal the money in the box.
The petty cash figures are recorded through manually posting the expenses to the profit and loss account and then reducing the petty cash balance on the balance sheet. If you are recording any money that was withdrawn from the bank, you will be obliged to reduce the bank balance and then to increase your petty cash balance. These transactions will then automatically be completed for you with any brand of contemporary bookkeeping software.
Petty Cash Book Security
Security in terms of having petty cash around is important as keeping it where it is easily accessible in the office can be a tempting target by an employee unless it is kept secure. The way to keep it safe is to make sure that it is kept under lock and key and safely hid away at all times with limited access. It is usually a good idea to make one person responsible for looking after it. A locking box is a simple way of keeping petty cash but you might want to consider investing in a larger safe for protection purposes, especially if you plan to leave it on site overnight.
Last modified: 8th March 2018