Accounting for Petty Cash
All businesses must use petty cash for minor expenses like entertainment, food, and stationery. Using debit, credit cards or issuing a cheque to cover those expenses is not advisable. It will create unnecessary complications in maintaining accounting records. Therefore all companies manage an imprest system and reimburse the float when it runs out. So, a small cash account is kept separately, then balanced and transferred to the general ledger at the end of each month. The money spent from the float will get reimbursed when closing the monthly transactions in the small cash account.
When paying expenses from petty cash, a little cash voucher is created and signed by the receiver and the cashier who pays the money, the costs incurred, and the claim made on the production of the receipts or cash is paid out in advance for the expense. The accounting staff sets A limit for the float at any one time. It is always made sure the total amount approved in the imprest system is kept either in the form of cash or a total of all the receipts and the leftover money. If everything is checked and approved by the senior accounting staff, reimbursement is for the total expenses entered in the petty cash voucher get reimbursed.
A petty cash system is the most effective method for small expenses, but cash handling needs monitoring.
The following was used to monitor the petty cash system
Locked away in a safe place when not in use.
Make one person responsible for handling cash.
Needs a secure place to operate cash handling
| Month | Petty cash voucher | $ |
| March | Bus fare Tea Lunch Stationery Taxi fare Postage Cleaning materials Coffee Travel Total | 2.50 3.00 10.00 5.60 6.00 7.50 26.00 4.00 3.50 68.10 |
Spot checks are required to ensure that everyone runs smoothly.
| Date | Dr | $ | Date | Cr | $ |
| March | Cash | 68.10 | March | Bank | 68.10 |
The total float should be a reasonable amount.
| March | Petty cash voucher | $ |
| Dr Dr Dr Dr Dr Dr Dr Dr Dr Cr | Bus fare Tea Lunch Stationery Taxi fare Postage Cleaning materials Coffee Travel Cash | 2.50 3.00 10.00 5.60 6.00 7.50 26.00 4.00 3.50 68.10 |
Petty cash does not form part of the double entry system and, at the end of every month posted to the general ledger before preparing the trial balance.
An example of petty cash expenses:
The required accounting entries will be as follows: