What is petty cash?

Petty Cash: A Quick Guide

Petty cash is a small amount of cash kept on hand to pay for minor expenses where writing a check or using a credit card isn't practical. Think of it as your company's "pocket money."

Key aspects of a Petty Cash system:

• Purpose: To cover small, immediate expenses like office supplies, postage, or parking fees.
• Custodian: A designated employee responsible for managing the petty cash fund, disbursing money, and keeping records.
• Establishment: The fund is created by writing a check from the company's bank account, cashed, and kept in a secure location (usually a locked box).
• Replenishment: When the fund gets low, it's replenished. The custodian provides receipts for all expenses, and a check is written to bring the fund back to its original amount.
• Controls: Internal controls are crucial to prevent fraud and misuse. This includes limiting the amount of each disbursement, requiring receipts, and regularly auditing the fund.
• Record Keeping: Accurate records of all transactions are essential. This typically involves a petty cash log that tracks each disbursement, the date, the recipient, and the purpose of the expense.
• Imprest System: Most petty cash systems operate on an "imprest" basis. This means that the fund is always replenished to its original amount, ensuring a consistent level of cash on hand.

Benefits:

• Convenience for small purchases.
• Reduces paperwork for minor transactions.
• Provides a quick way to reimburse employees for out-of-pocket expenses.

Potential Issues:

• Risk of theft or misuse.
• Poor record keeping can lead to inaccuracies.
• Requires careful management and oversight.