How to Deal With Petty Cash Accounts
The term "petty" cash derives from the French "petit," or small. Petty cash provides small amounts of cash for special situations, such as travel expenses, or for occasions when the standard payment system is too slow or expensive. A specific member of the accounting staff, the petty cashier, is normally in charge of the company's petty cash. She distributes cash upon receipt of a signed petty-cash voucher from another employee or a small invoice from a supplier. The company accountant reimburses the amount of petty cash, either by replacing at regular intervals the money that has been paid out -- a setup called the imprest system -- or by giving the petty cashier fixed amounts of cash when she needs it.
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Instructions
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Credit the bank account and debit the petty-cash account with the amount of cash provided to the petty cashier. Record the transaction in the cash book or as a journal entry before posting it to the general ledger.
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Analyze, at least monthly, the petty-cash receipts or vouchers by type of expense. Total the receipts and check that the amount remaining in the petty-cash box is equal to funds received less vouchers held. Note any discrepancy as cash over, if a surplus, or as a shortage.
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Record the expenditure as a journal entry. Debit the individual expense or asset accounts with the amounts spent and credit the petty-cash account with the total amount paid out. Debit the cash over and short account with any shortage or credit it if there is a cash overage.
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Debit the petty-cash account and credit the bank account with the amount required to replenish the petty-cash box. The amount of petty cash on hand at the end of the accounting period shows as a current asset on the balance sheet.
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Tips & Warnings
Petty cash cannot be overdrawn, so the petty cash account in the general ledger will always have a debit balance.
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