Don’t let Petty Cash administration become a chore make it as simple as possible.
I have seen a number of different attempts being implemented by clients but have found the following two methods to be the easiest to manage. They work equally well whether you are the only person using the petty cash or whether a number of people are using it. And from a record keeping perspective you follow the same process to capture the information.
METHOD 1
To start with a float is withdrawn from the bank, and put in an envelope; the amount is noted on the envelope. Each time someone takes money from the envelope to purchase an item, they return the tax invoice / receipt together with the change to the envelope, and make a note of the amount spent. Once the amount is spent and a new amount withdrawn the original envelope together with the tax invoices is reconciled on your record keeping system and filed. If there is a small amount of cash left, it is moved to the new envelope and a note made of the opening balance.
The benefit of doing it this way is that the Petty Cash is being reconciled on a regular basis and if there is a difference it can easily be explained. With this method you are able to provide Petty Cash to each person and they are responsible for managing their own cash purchases instead of one person trying to get everyone to comply with the rules.
For those using an accounting package, this can be managed by a photo being taken of the invoice at the time of purchase and entered directly onto the software.
METHOD 2
This is not so much a Petty Cash system as a reimbursement system. When someone spends cash they use their own funds and at an agreed time, usually weekly or monthly the slips are collated and they are reimbursed for the amounts spent. The record keeping system remains the same, see below for the process.
Again for those that are comfortable with using the latest accounting software a photo can be taken of the invoice and it can be saved directly to the software if your software allows this.
RECORDING THE TRANSACTIONS IN THE SOFTWARE
NOTES
I have seen a number of different attempts being implemented by clients but have found the following two methods to be the easiest to manage. They work equally well whether you are the only person using the petty cash or whether a number of people are using it. And from a record keeping perspective you follow the same process to capture the information.
METHOD 1
To start with a float is withdrawn from the bank, and put in an envelope; the amount is noted on the envelope. Each time someone takes money from the envelope to purchase an item, they return the tax invoice / receipt together with the change to the envelope, and make a note of the amount spent. Once the amount is spent and a new amount withdrawn the original envelope together with the tax invoices is reconciled on your record keeping system and filed. If there is a small amount of cash left, it is moved to the new envelope and a note made of the opening balance.
The benefit of doing it this way is that the Petty Cash is being reconciled on a regular basis and if there is a difference it can easily be explained. With this method you are able to provide Petty Cash to each person and they are responsible for managing their own cash purchases instead of one person trying to get everyone to comply with the rules.
For those using an accounting package, this can be managed by a photo being taken of the invoice at the time of purchase and entered directly onto the software.
METHOD 2
This is not so much a Petty Cash system as a reimbursement system. When someone spends cash they use their own funds and at an agreed time, usually weekly or monthly the slips are collated and they are reimbursed for the amounts spent. The record keeping system remains the same, see below for the process.
Again for those that are comfortable with using the latest accounting software a photo can be taken of the invoice and it can be saved directly to the software if your software allows this.
RECORDING THE TRANSACTIONS IN THE SOFTWARE
- Create an Asset Account called PETTY CASH, and ensure it is set up as a “Bank Account”, this is so that the systems allow you to reconcile the account.
- To record the expenses, simply capture the tax invoices as you would an expense paid from the bank account but select the PETTY CASH account as the Account to pay from. Allocate the expense as normal under the relevant expense code.
- When you draw money from the bank account so that you have cash for your Petty Cash envelope / box, record a transfer from the Bank Account to the Petty Cash Account.
- As the end of the period, but at least once a month, reconcile the amounts on the system, using the cash balance that you have on hand as your closing bank statement value.
NOTES
- It is important to reconcile and capture the petty cash entries on a regular basis but at least once a month.
- If any of the funds are used for personal purchases, load the expense so that the amount is allocated to Drawings or Directors Loan (depending on how you operate).
- Keep the slips together in the envelope for your records.
- If on occasion you receive cash from clients and add it to your Petty Cash, record this as having been received from clients and select Petty Cash as the deposit account instead of bank account.
