Petty Cash Accounting: What You Need to Know

Chances are that your business has a petty cash fund. Even if you don’t call it that, petty cash is money that is used for small, often unexpected business purchases. This could be something like buying lunch for a meeting or picking up new office supplies.

Even though petty cash spending is typically relatively small, it’s still important to keep track of it and to have some relevant guidelines in place. If you don’t, expenses can add up big time, and your business could end up losing more money than you bargained for or than you even realize.

Regulating Petty Cash Spending

To begin with, you need to have some kind of rules and regulations in place as they relate to petty cash spending. First, determine if you want to have an actual physical petty cash account, a credit card to be used for petty spending, or a combination of the two. Having some kind of system in place, such as using the credit card for expenses over a certain amount, is smart. You can come to any agreement or system that works for you; the point is simply to have one and to make sure everybody knows and follows the related procedures.

It’s also wise to require all people to keep record of any petty cash money they spend and what it was spent on; have them provide receipts when possible. Furthermore, it’s a good idea to require employees to go through a formal cash requesting process for transactions over a certain amount; this way, higher dollar purchases can be approved ahead of time to avoid misappropriation of large amounts of company funds.

Basic Bookkeeping

In addition to having some kind of “spending system” in place, you should also have a way to keep track of petty cash spending and expenses. You can do this the old fashioned way- by recording the starting amount, transactions, and replenishment's in a notebook or on paper- or you can find a simple accounting software program to keep track of this data for you.

Require receipts for all expenses, and track down any receipts or purchases that are unaccounted for to keep everyone honest. When employees know that you are keeping careful track of petty cash spending, they’ll be a lot less likely to use funds in an unapproved-of manner.

Use Security Protocols

Another thing that’s smart to do is to have some security measures in place to keep dishonest or unauthorized employees from getting to the petty cash. If you use physical cash, keep it in a locked box or other secure space and only give the key to authorized employees. For credit cards, set up the card so that only certain people have permission to use it. This will severely reduce your business’s risk of being victimized by theft.

Learn from Your Spending

Finally, regularly go over your petty cash spending to see where you can cut costs. This is a great way to make your business more efficient and to save money in the long run. That, in fact, is one of the major benefits of good petty cash accounting, along with all these other great advantages!

Monday, May 30, 2016