By Brian E. Ravencraft, CPA, CGMA is a Principal with Holbrook & Manter, CPAs
Petty cash is defined by Wikipedia as a small amount of discretionary cash funds used for expenditures where it is not sensible to write a check because of convenience and the cost of writing, signing and cashing the check. So, while petty cash is a small amount of money, it can also be stolen or abused, so it is best to have some rules to handle it.
- Set a reasonable amount for petty cash. Estimate how much you would need to cover small office expenses for about a month. You want the amount to be as small as possible, without having to replenish too often.
- Have a set of rules on how petty cash can be spent. Put the policy in writing and give some good examples of what petty cash can be used for — making change, small office supplies, postage, etc. You can also have a ceiling on the amount of a receipt that can be reimbursed from petty cash, such as $25, so that employees know ahead of time what will be allowed.
- Have a secure location to keep petty cash. Keep petty cash in a locked location such as a file cabinet or desk drawer.
- Give access to only one employee. Designate one employee to have responsibility for the petty cash fund. If every employee has access and funds are missing, it will be hard to know who might be responsible for the lack of documentation or even theft.
- Require everyone to provide receipts. The designated employee should require employees to fill out a voucher or provide a receipt for the expenses paid from petty cash. A running log should be kept.
- Balance and replenish petty cash. When petty cash is replenished, the actual cash should be counted. Adding the cash total to the total expense receipts in petty cash should total to the original amount put into petty cash. Once petty cash is “balanced,” write a company check to the designated employee for the amount of the receipts contained in petty cash. They can then cash the check and replenish petty cash.
For more information on petty cash or help with petty cash or other accounting questions, contact Holbrook & Manter.
Brian E. Ravencraft, CPA, CGMA is a Principal with Holbrook & Manter, CPAs. Brian has been with Holbrook & Manter since 1995, primarily focusing on the areas of Tax Consulting and Management Advisory Services within several firm service areas, focusing on agri-business and closely held businesses and their owners. Holbrook & Manter is a professional services firm founded in 1919 and we are unique in that we offer the resources of a large firm without compromising the focused and responsive personal attention that each client deserves. You can reach Brian through www.HolbrookManter.com or at BRavencraft@HolbrookManter.com.