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Journalizing Petty Cash Transactions Financial Accounting

Ideally, people in this role will be comfortable handling business expenses and have experience with financial statements. Those with prior financial accounting experience are especially great with this, but anyone that’s handled expense accounts should be fine. It is important to realize that the $80 check will be credited to Cash (the company’s checking account). There is no entry to the Petty Cash account when merely replenishing the petty cash. Finally, using petty cash can also create a sense of entitlement among employees. If they are used to having access to extra funds for small purchases, they may begin to expect it as a regular perk of the job.

The purpose of petty cash replenishment is to ensure that there’s always enough cash on hand to cover small, immediate expenses. As the next step in the petty cash replenishment process, record the receipt amounts as debits to the accounts you selected. If your petty cash was short or over, debit shortfalls (expense) and credit overages (revenue) to the cash short and over account, reports Accounting Tools. Offset the total with a credit to cash to write your next petty cash check. 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.

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  1. Companies replenish the petty cash fund at the end of the accounting period, or sooner if it becomes low.
  2. Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology.
  3. When the fund is replenished, the credit to Cash is for the difference between the established amount and the actual cash in the fund.
  4. You (or your petty cash cashier) must also create journal entries showing what petty cash funds go toward.

At this time, the total of all of the receipts is calculated to ensure that it matches the disbursed funds from the petty cash drawer. If new funds are needed, the cashier writes a new check to fund the petty cash drawer and takes, in exchange, the receipts from the purchases that depleted the cash. 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.

Without a petty cash system, using small cash amounts periodically can add up to a major discrepancy in your books. And when you maintain records of all your business’s expenses, you can claim tax deductions. The petty cash custodian is the person accountable for the petty cash fund.

Related AccountingTools Courses

When the petty cash fund gets too low, you must refill it to its set amount. Then, create another journal entry debiting the Petty Cash account and crediting the Cash account. After posting to the ledger (we’ll use T accounts here), the checking account balance will go down by $100 and the petty cash balance will go up by $100. Then, get the total of the Amount column to determine total petty cash expenses. The ending balance is the difference between the beginning balance and the total petty cash expenses. The currencies inside the lockbox should be equal to the ending balance.

Increasing the Base Fund

Companies replenish the petty cash fund at the end of the accounting period, or sooner if it becomes low. The reason for replenishing the fund at the end of the accounting period is that no record of the fund expenditures is in the accounts until the check is written and a journal entry is made. (Sometimes we refer to this fund as an imprest fund since it is replenished when it becomes low.).

The custodian must create a petty cash voucher for all expenditures. This voucher indicates the purpose of the expenditure, the date, and the name of the person receiving the cash. 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). Company petty cash is a small amount of cash kept on hand by a business for the purpose of making small purchases. The cash is typically kept in a locked box or drawer, and only a designated employee, usually the office manager or bookkeeper, has the key.

How to Reconcile Petty Cash?

When the fund is replenished, the credit to Cash is for the difference between the established amount and the actual cash in the fund. Any discrepancy should be debited or credited to an account called Cash Over and Short. The Cash Over and Short account can be either an expense (short) or a revenue (over), depending on whether it has a debit or credit balance. Petty cash refers to a small amount of money, including bills and coins, kept on hand for employees to make small purchases that don’t require a company credit card or check. These purchases typically involve minor expenses such as office supplies, snacks, flowers, catered lunches, and small reimbursements. Due to the involvement of actual cash, it is crucial for businesses to carefully oversee the utilization of these funds.

Right after this entry has been recorded, the check cashed, and the proceeds put in the box, there will be $100 in the box again, an amount which will match the general ledger account. In fact, there is always $100 in the box if you add up all the receipts and the cash (more or less, depending on the cash over/short situation). This system simply delays the recording of small expenses until the end of the accounting cycle or the fund is replenished. It’s not really an adjusting journal entry because there is an actual transaction being recorded. Having a petty cash account is  just more convenient than going to the accounts payable clerk every time someone needs a stamp or a liter of coffee for a meeting.

Journalizing Petty Cash Transactions

However, when there is a petty cash outflow, we usually do not record it into the accounting record immediately. Credit cash and write your next petty cash check for the combined total of the money taken from petty cash, $81.27. petty cash replenishment $81.27 plus the $18.73 already in the lock box restores petty cash to $100. Since most petty cash purchases are for business expenses, you will likely be able to deduct them from your business’s taxes at year-end.

He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University. Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications. To accomplish the reimbursement, the treasurer’s office provides the requested amount (by check or currency) to the custodian. Verify that the fund in the Total Petty Cash Fund Balance row equals the Allocated Account Amount.

Balance Sheet

Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries.

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