How To Do Petty Cash Accounting & Recording in 6 Steps

petty cash replenishment entry

In this case the calculation of the replenishment amount is as follows. As mentioned, petty cash can make things nice and convenient but does carry certain risks. If you follow some best practices, you can reduce the risks that come with petty cash, and protect yourself and your employees. While petty cash is a relatively small amount of money, it can be easily stolen or abused if you don’t handle it right.

  • You must document each expense if you want to deduct it from your business taxes.
  • The petty cash book is not part of the double entry bookkeeping system, and simply records movements on the petty cash imprest fund.
  • During the period, ABC Co. also received $500 from a customer as cash.
  • As Accounting Coach reports, a replenishment threshold is the balance at which you will write a check to petty cash restoring it to the opening balance amount.
  • The petty cash custodian will keep all petty cash items inside a lockbox.
  • It is also important to monitor the vouchers used for debiting the general ledger accounts to ensure that the correct accounts are debited.

Then, get the total of the Amount column to determine total petty cash expenses. The ending balance is the difference between the beginning balance and the total petty cash expenses. The currencies inside the lockbox should be equal to the ending balance. The bottom portion of the petty cash log won’t be completed until the cash in the lockbox needs to be replenished. There’s no need to make journal entries when expenses are reimbursed from cash in the lockbox. The petty cash custodian is the person accountable for the petty cash fund.

Bookkeeping

It should be noted that the debit to the income statement for the expenses, reduces the net income which reduces the retained earnings and therefore the equity in the business. Sign up to receive more well-researched small business articles https://www.bookstime.com/ and topics in your inbox, personalized for you. Eric Gerard Ruiz is an accounting and bookkeeping expert for Fit Small Business. He completed a Bachelor of Science degree in Accountancy at Silliman University in Dumaguete City, Philippines.

  • The petty cash journal entry is a debit to the petty cash account and a credit to the cash account.
  • These expenses can include paying postage, tipping delivery people, purchasing supplies, buying gifts and more.
  • The transaction that replenishes the petty cash fund is recorded with a compound entry that debits all relevant asset or expense accounts and credits cash.
  • When the fund is replenished, the credit to Cash is for the difference between the established amount and the actual cash in the fund.
  • Those with prior financial accounting experience are especially great with this, but anyone that’s handled expense accounts should be fine.
  • If the vouchers total $130 but the fund needs only $125, the journal entry includes a $5 credit to the cash over and short account.

He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University. After we click the green Save button, the first entry should appear like in the image below. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. He is the sole author of all the materials on AccountingCoach.com.

Reconcile a Petty Cash Fund

Most companies specify the amount of money the petty cashier can allocate to a specific payment. If an item exceeds that amount, companies deal with the reimbursement through other means. On top of that, they may also specify the areas or accounts that the petty cash can cover. As mentioned above, most companies have transferred their money transactions to banks.

The Cash Over and Short account can be either an expense (short) or a revenue (over), depending on whether it has a debit or credit balance. The petty cash book is not part of the double entry bookkeeping system, and simply records movements on the petty cash imprest fund. After entering all expenses, it’s time to record the replenishment. First, click Add Deposit then fill out all the required information. Heather needs a $315 reimbursement to bring the petty cash balance back to $500. Every month, or as cash is needed, the custodian should summarize the petty cash log by expense account and record a journal entry debiting each expense and crediting petty cash.

Replenishing the Imprest Petty Cash Fund

This should be small enough that employees won’t be tempted to steal it but large enough that you don’t have to replenish it too often. Pick a dollar amount you think will cover small office expenses for a month or so. A petty cash fund between $100 and $500 is sufficient for many small businesses. Used to record an increase in the petty cash/ cash drawer balance authorized. This account is not changed unless there is a change in the value of the petty cash/cash drawer. All entries to reimburse the petty cash are charged to an operating account, not the original petty cash account.

  • As mentioned above, most companies have transferred their money transactions to banks.
  • She needs to obtain a company check for $80 in order to cash it and return the cash amount to $100 (the amount shown in the Petty Cash account).
  • Double Entry Bookkeeping is here to provide you with free online information to help you learn and understand bookkeeping and introductory accounting.
  • The journal entry for petty cash received from customers is as follows.

The cash from the cash account replenishes the petty cash fund, and at the same time the journal records the expenses in the correct expense account. Again, it is important to realize that no entry has been made to the petty cash account, this remains fixed at the original imprest amount of 100. If every employee has access to petty cash, bad or nonexistent record keeping usually results. Instead, designate one employee to be responsible for the petty cash fund.

Policies should be established regarding appropriate expenditures that can be paid from petty cash. When a disbursement is made from the fund, a receipt should be placed in the petty cash box. The receipt should set forth the amount and nature of expenditure. At any point in time, the receipts plus the remaining cash should equal the balance of the petty cash fund (i.e., the amount of cash originally placed in the fund). Companies assign responsibility for the petty cash fund to a person called the petty cash custodian or petty cashier. To establish a petty cash fund, someone must write a check to the petty cash custodian, who cashes the check and keeps the money in a locked file or cash box.

To combat this risk, keep the petty cash in a locked filing cabinet or cash box. Only you and the employee designated to oversee the fund should have the keys. In his article for the Institute of Internal Auditors, bank auditor Umair Danka notes that there’s a significant petty cash risk of petty cash being spent on non-business activities. To combat this, make sure your employees understand upfront what petty cash can and can’t be spent on. The remaining $185 on hand is what’s left of the $500 petty cash fund after reimbursements.

Petty Cash: Accounting & Beyond

As cash is spent from a petty cash fund, it is replaced with a receipt of the purchase. At all times, the balance in the petty cash box should be equal to the cash in the box plus the receipts showing purchases. Suppose for example a business maintains a petty cash fund of 300.

If the petty cash is not properly secured, it could be easy for someone with ill intentions to take the money. If receipts are not properly tracked and filed, it can be difficult to account for all of the expenses. This can lead to problems down the road, especially if an audit is conducted. A company, ABC Co., uses its petty cash account to deal with various transactions during an accounting period. However, companies limit how much they can pay through this account. If payment is eligible under this account, companies can record the transaction.

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