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After posting to the ledger (we’ll use T accounts here), the checking account balance will go down by $100 and the petty cash balance will go up by $100. Say goodbye to tedious petty cash books full of mystery payments and supercharge your business by joining Soldo today. Soldo eliminates the inconsistencies inherent to petty cash payments, as employees just have to snap a photo of their receipt when they carry out a purchase, and all the spend-data is 7 things to do before applying for a business loan collated by Soldo. Then, when it’s reconciliation time, you can utilise our seamless integrations to transfer this data to accounting software such as QuickBooks, Xero, and NetSuite in no time at all. At the end of the month, staff submit expense reports plus receipts. You or your petty cashier then carry out a petty cash reconciliation to confirm that the reporting matches the leftover sum, and top up the petty cash balance so it’s back at £1,000.

• However, for the payment of small expenditures (e.g., stationery, travel, postage, and newspapers), paying by check is unreasonable.
• Sometimes the petty cash custodian makes errors in making change from the fund or doesn’t receive correct amounts back from users.
• He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.
• Though not literally cash, it’s money that can be easily and quickly accessed, which is why it’s “on hand.”
• Under this system, the petty cashier is given a lump sum to meet petty expenses.

All receipts are recorded on the debit side and all payments are recorded on the credit side of petty cash book by the petty cashier. Right after this entry has been recorded, the check cashed, and the proceeds put in the box, there will be $100 in the box again, an amount which will match the general ledger account. In fact, there is always $100 in the box if you add up all the receipts and the cash (more or less, depending on the cash over/short situation). This system simply delays the recording of small expenses until the end of the accounting cycle or the fund is replenished. It’s not really an adjusting journal entry because there is an actual transaction being recorded.

Requirements for Petty Cash

Under imprest system, a fixed amount of money known as float is given to the petty cashier to meet petty expenditures for an agreed period which usually consists of a week or month. At the end of agreed period, the petty cashier submits the details of all expenditures incurred by him to the chief cashier. The total cash spent by the petty cashier during the period is reimbursed to him and the total cash available to spend at the start of the next period becomes equal to the original sum (i.e., float). At any time, the total of petty cash balance and all expenditures that have not been reimbursed to the petty cashier is equal to the agreed float. These credits can be for such transactions as payments for meals, flowers, office supplies, stamps, and so forth.

The reconciliation process ensures that the fund’s remaining balance equals the difference between the original balance minus charges detailed on receipts and invoices. If the remaining balance is less than what it should be, there is a shortage. If the remaining balance is more than what it should be, there is an overage. Although there can be minor variances, when unbalanced, the source of the discrepancy should be identified and corrected.

Stages of Operating Petty Cash Fund

Our petty cash hub gets into a lot more depth about this particular expense management system, so if you want to dig into it further you can head over there. For now though, we’ll be getting into everything you need to know about petty cash books. Your business has to manage small expenses somehow, and you may have decided that petty cash is the method for you. However, for the uninitiated, a quick explainer of petty cash is that it’s a physical fund that employees can dip into to pay for everyday expenses, such as staples or printer paper. From the following transactions in the month of   March 2018, prepare a petty cash book for Our Co. ltd considering the two scenarios of an ordinary petty cash system and imprest petty cash system.

When the whole amount of petty cash is spent, the petty cashier submits the account to the chief cashier who again pays a lump sum to the petty cashier. If they record petty expenses in the main cash book, then both the chief cashier and the main cash book will be overburdened. Enter the following transaction into a petty cash book with these headings. Postage and stationery, travelling expenses, carriage, office expenses. At the end of the month, assume the $100 petty cash fund has a balance of $6.25 in actual cash (a five-dollar bill, a one-dollar bill, and a quarter). Frank, who is the responsible person, has been filling out the voucher during the month, and all the receipts are stapled to the voucher.

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The reconciliation and review process help organizations safeguard against any leakages because it is often harder to keep track of these expenses. A benefit of the imprest system is that you always know the absolute maximum that can be spent each month, so it’s impossible to overspend. 1.The imprest system is an arrangement which brings down the probability of misuse of cash.

The journal entry for giving the custodian more cash is a debit to the petty cash fund and a credit to cash. Simple petty cash bookA simple petty cash book is one which there is only one amount column on its both sides with common date and particular columns. The debit column is used for entering the balance of cash in hand of the petty cashier at the beginning of the period and the amount received from the head cashier.