All businesses come across small incidental expenses in the course of daily operations, these amounts are often too small to pay via EFTPOS or Credit and often there is not an option to place these charges on a company account or request an invoice. Petty Cash is the word given to the small amount of money that is held in an office to pay off small purchases such as Milk and Coffee. The aim of the petty cash system is to make small purchases during the month and then add them together and expense them at the end of the month.
Setting up a Petty Cash Account
Setting up a petty cash tin is straight forward; all you need is a Lock Box, a log book and some cash. If you are using Accounting Software ensure to create a Bank Account named “Petty Cash” and transfer the opening balance into the account from your business account. At the beginning and end of each month the balance of the account in your accounting system should match the balance in the Cash Tin. A simple template can either be created in excel or purchased from any office supply store including Amazon.com.
To create your own template use the headings I have listed below, the benefit of a purchase Petty Cash log is the duplicate pages, when filling in a petty cash receipt on a purchased log book you can actual give a copy to the person who requests the cash, they can than file the receipt for their own records.
How does Petty Cash work?
To explain the best process for Petty Cash I will use a scenario; The CEO is heading out for coffee with a client and needs some cash.
- The CEO requests the cash
- Before issuing the cash, fill in the log book ( see the above template)
- Put the log back into the Cash box and issue the money
- When the CEO returns with his receipt, staple the receipt to the log book and place the receipt along with the change and log book back into the tin
At the end of each month the receipts should be added up allocated against an expense account. The money is then withdrawn from the business transaction account and replaced back into the Petty Cash Tin. This means the balance in the tin should always be equal to the opening balance ( receipts plus the cash)
What starting balance should I use?
The balance of the petty cash account should be reasonably small $100-$200, the best way to find the balance that works for your business is to start small and increase the account balance until you find the amount that works. The aim is to only need to top the account up once a month, therefore if you find yourself topping up the account each week than you should probably increase the balance of the account. Ensure not to have too much money in the Petty Cash tin in case of a robbery or theft.
Tips and Tricks
The biggest tip that any bookkeeper would tell you is to not let the Petty Cash tin snowball. In my experience I have noticed a lot of businesses don’t pay enough attention to the Petty Cash tin and allow it to become a box full of fading receipts that only gets looked at once every couple of months. The problem with this approach is the fact that if you do your petty cash monthly it can take 15minutes and be stress free, if you do it once a quarter or half yearly it can often take several hours to sort the receipts and then theoretically you should expense the amounts into the individual months when the money was spent, Tip number 1: Balance your Petty Cash monthly.
Another great tip is to maintain a good record of transactions. I find the easiest way to do this is to convince your employees to write the details regarding the transaction on the back of the receipt, for example if a manager went out for coffee with a potential client they could write their name, the company the client works for and the reason for the meeting. Tip number 2: keep a good record of transactions.
Remember that every transaction needs to be recorded, Tip number 3: Record every in and out from the petty cash box.
The final advice is to ensure the box remains locked at all times and access to the petty cash box is limited to one employee. This will ensure the person who holds the key will have a feeling of accountability and they will ensure the cash is always balanced Tip number 4: Accountability.
Good Luck and hopefully this helped you to set up a safe and secure Petty Cash tin which you can easily manage and monitor.