Does your company require cash on hand for miscellaneous purchases?  If so, accounting must be done to keep all of your cash received accounted for.  To establish a petty cash fund, you will first write a check payable to Petty Cash fund, cash it and then place it in your petty cash fund box.  To record it in your general ledger, you will do as follows:

Petty cash    (debit)

Cash                              (credit)

The petty cashier makes payments out of the petty cash fund. When each payment is made, the person receiving the payment signs a Petty Cash Receipt which the petty cashier completes.The petty cash receipt shows specific information about the payment including:

  1. What the payment was for
  2.  The date the payment was made
  3. The expense account to charge
  4. The amount paid out
  5. Who approved and received the payment

At all times, the total of all receipts plus the remaining cash should equal the total amount of the petty cash fund.

When replenishing the petty cash fund, you may have overages or shortages.  If there are shortages, you will record it like an expense when you replenish the fund. A debit  to cash over and short is made for the shortage and a credit to cash is made. If there is an overage, record it when you replenish the fund. A credit to cash over and short account is made for the overage, and a debit to cash.

Example: The petty cas fund normally has $ 75.00 in it. Sarah has receipts for $70.50 and ther is $3.50 cash left. She submits the report to the accountant who verifies the receipts and issues her a check for $71.50. Sarah replenishes the fund. The accountant records the replenishment in the general ledger:

                                      Debit                          Credit

Misc. expense                 $48.00

Transportation in             $12.75

Delivery expense             $5.00

Office expense                $4.75

Cash over and short         $1.00

Cash                                                    $71.50

Note here that to replenish the fund, $3.50 is required ($3.50 + $71.50).

In addition, you might sometimes need to increase or decrease the petty cash fund. This is done when you replenish the fund. The journal entry required for this is as follows (eg increase fund from $75.00 to $100.00)

                                      Debit                 Credit

Petty cash                       $25.00

Office expense               $29.00

Delivery expense            $25.00

Repairs expense              $21.00

Cash                                                $100.00

This is typically how you will work with a petty cash fund. It can be somewhat confusing, but when you are working with cash, each and every penny must be accounted for, otherwise there will be errors in your financial statements and your petty cash fund will be off.  This method may not work for your company, but it gives a perspective of using care when working with cash.

Copyright Jeanine Pfeiffer

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Pfeiffers Accounting & Consulting LLC, Tax Return Preparation, Maple Valley, WA

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