how to replenish petty cash

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Additionally, it can help to build goodwill with vendors when they see that the company is prepared to do business with them on a regular basis. All in all, company petty cash can be a helpful tool for keeping businesses running smoothly. Sometimes, the petty cash custodian makes errors in making change from the fund or doesn’t receive correct amounts back from users. These errors cause the cash in the fund to be more or less than the amount of the fund less the total vouchers.

how to replenish petty cash

Cash on hand refers to all the money you have in your safe and in bank accounts, including the actual bills and coins you have in your petty cash fund. You (or your petty cash cashier) must also create journal entries showing what petty cash funds go toward. Your petty cash custodian should be the only employee distributing petty cash. Your petty cash custodian determines if the expense is appropriate according to your business’s petty cash policy.Petty cash is considered a highly liquid asset.

Petty Cash: Explanation

So, when all of these receipts are totalled at the end of the month and deducted from the opening float, the calculated value must agree with what is left in the float. Under the imprest system, only that which is recorded as spent is replenished. Petty Cash is a current asset account; it is part of a company’s cash. Company ABC uses the petty cash for the expense amount $ 400 and the remaining balance is only $ 100. Petty cash replenishment refers to the process of restoring the cash balance in the petty cash fund back to its original imprest amount.

Usually one individual, called the petty cash custodian or cashier, is responsible for the control of the petty cash fund and documenting the disbursements made from the fund. By assigning the responsibility for the fund to one individual, the company has internal control over the cash in the fund. The second journal entry is debiting petty cash $ 400 and credit cash on hand $ 400.

There are different ways of tracking transactions in a petty cash book. Some organizations use a separate cash register for the petty cash, and others just track the transactions on ordinary receipts or invoices. How you track your costs does not matter as long as it is consistent.

You would use your petty cash fund to reimburse your employee for the purchase of the supplies. In a simple system, all petty cash expenditures are documented as they happen. The total of these costs is added to the petty cash account monthly, and the monthly amount is entered into the General Ledger as an expense. When disbursing cash from the fund, the petty cash custodian prepares a petty cash voucher, which should be signed by the person receiving the funds. A petty cash voucher is a document or form that shows the amount of and reason for a petty cash disbursement.

  1. Make sure your employees understand what the petty cash fund can or can’t be used for by creating a petty cash policy.
  2. In any given month, a custodian will make various disbursements from the petty cash fund.
  3. Finally, using petty cash can also create a sense of entitlement among employees.
  4. It is important to realize that the $80 check will be credited to Cash (the company’s checking account).
  5. Some organizations use a separate cash register for the petty cash, and others just track the transactions on ordinary receipts or invoices.

When the petty cash fund gets too low, you must refill it to its set amount. Then, create another journal entry debiting the Petty Cash account and crediting the Cash account. You typically evaluate your petty cash fund at the end of each month for more accurate balances. Remember to record petty cash expenses in your accounts as journal entries. Petty cash, or petty cash fund, is a small amount of cash your business keeps on hand to pay for smaller business expenses. These small amounts of cash can pay for low-cost expenses, like postage stamps or donuts for a meeting.

Petty cash accounting

These are expenses which are incurred day after day; usually, petty expenses are large in quantity but insignificant in value. Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own.

Typically, companies keep between $30-$300 in their petty cash funds. The use of petty cash is only appropriate for small, erratic expenses that pop up unexpectedly. Even then, a petty cash fund is only appropriate if there is someone to monitor it and track the use of the money. Petty cash is a small amount of cash kept on hand to cover small, and often unexpected, expenses that pop up during a business day. You might use money from the petty cash fund to pay for minor expenses such as postage, Uber fares, or reimburse someone $10 for bringing in a box of donuts. Petty cash is stored in a petty cash drawer or box near where it is most needed.

There may be several petty cash locations in a larger business, probably one per building or even one per department. A separate accounting system is used to track petty cash transactions. Petty cash is a small amount of cash that is kept on the company premises to pay for minor cash needs. Examples of these payments are office supplies, cards, flowers, and so forth. The use of petty cash can be an effective way to keep minor items from bogging down the accounts payable system.

Petty cash is a convenient alternative to writing checks for smaller transactions. You must record petty cash transactions, even if you think they’re too low to matter. Without a petty cash system, using small cash amounts periodically can add up to a major discrepancy in your books. And when you maintain records of all your business’s expenses, you can claim tax deductions. Before establishing a petty cash fund at your small business, be prepared to create a petty cash accounting system.

how to replenish petty cash

The petty cash custodian refills the petty cash drawer or box, which should now contain the original amount of cash that was designated for the fund. The cashier creates a journal entry to record the petty cash receipts. This is a credit to the petty cash account, and probably debits to several different expense accounts, such as the office supplies account (depending upon what was purchased with the cash). The balance in the petty cash account should now be the same as the amount at which it started.


You must debit your Postage, Meals and Entertainment, and Office Supplies accounts and credit your Petty Cash account. It is important to realize that the $80 check will be credited to Cash (the company’s checking account). There is no entry to the Petty Cash account when merely replenishing the petty cash. The greatest degree of internal control can be maintained when a petty cash fund under the control of one individual is established to handle these expenditures. In a petty cash system, receipts are written for each amount issued.

The amount of the replenishment should be sufficient to bring the cash balance of the cash box back up to its designated balance. For this reason, companies typically establish a petty cash fund that needs to be replenished every two to four weeks. Companies assign responsibility for the petty cash fund to a person called the petty cash custodian or petty cashier. After the check is cashed, the petty cash custodian normally places the money in a small box that can be locked.