Petty Cash Definition
Understanding Petty Cash
Petty Cash or Petty Cash is a small amount of money available to pay for small expenses without writing a check. Cash is also the title of the current asset account in the general ledger which reports the amount of money issued by the company with a nominal that is not large. The amount of petty cash will vary according to the scale of the company.
Petty cash is controlled through the use of petty cash vouchers for every payment made. The expense will be recorded in the company’s general ledger expense account when the petty cash on hand is refilled.
Petty Cash Payment Example
Some examples of payments made from petty cash include:
1. Pay the courier service for document delivery of IDR 9000 for shipping costs.
2. Replaced Rs. 5000 for employees who bought pens to support their work.
3. Reimburses employees for buying snacks for employee meetings.
At the end of each month, the accountant makes a journal entry for the amount used and replenishes the cash amount to its initial value. Each expense incurred requires a journal entry that credits petty cash and debits the expense account listed on the petty cash voucher.
To replenish the account, the custodian adds the total value of the disbursed amount and withdraws that amount from the cash account to return the petty cash to the initial fund value. The journal entries for the replenishment amount are debits to petty cash and credits to cash.
Petty Cash Function for Business
Having the right amount of petty cash allows businesses to respond quickly to unexpected business needs as they arise. With proper controls, a petty cash fund is a valuable tool that keeps a business going without having to enter a journal.
In a small business, the business owner may only reimburse employees literally out of his own pocket when petty cash transactions occur, but this kind of informal situation can lead to poor openings and will be in trouble if the business owner doesn’t have cash one day. You can also use this cash system when your company is growing and already has many employees.
How to Control Petty Cash Effectively
Many businesses have lost large sums of money over time due to a lack of control over petty cash disbursements. Weak control over cash in an environment where employees often have difficulty obtaining cash creates tempting opportunities for embezzlement and fraud. Having strong control over petty cash is the surest way to prevent potential embezzlement. Here are some tips that you can use:
1. Determine the interval and when to fill
The first step is to determine how much and what you want to keep in petty cash, and the rate at which the petty cash should be replenished. intervals and limits on the maximum amount stored in petty cash at any time. The amount issued from the petty cash must be replaced when the funds are at the level where they need to be replenished.
To determine the amount, consider the small payments you normally make over a set period such as a week or a month and set a reasonable number of replenishment intervals. Limits on replenishing funds will also reduce the risk of holding too much cash that you may not need.
2. Separate roles
In a small company, it is impossible to have different people in charge of petty cash funds, maintaining petty cash accounts and approving petty cash payments. At a minimum, approving persons may not hold petty cash funds and associated accounts.
3. Set a fee limit and create an approval matrix
It will be very important to determine the maximum amount that can be withdrawn from petty cash. Payments that exceed the limit may not be paid with petty cash. For example, the amount does not exceed 100 thousand rupees and do not forget to determine who can approve the disbursement of the costs from the cash.
4. Use vouchers for all transactions
Create a system for petty cash disbursement. In this system, fee requests must be recorded on the voucher and approved by the authorized person prior to disbursement
5. Receipt requests to support claimed expenses
The disbursement policy should require claims to be supported by receipts. In some cases, such as taking a taxi, the receipt may not be available. In such a case, the approving person must be able to assess the reasonableness of the expenses.
6. Review approval of request for reimbursement
To request reimbursement, petty cash holders must submit all petty cash vouchers together with relevant supporting documents. The person approving the request must ensure the following:
1. Check the voucher, check whether the amount on the voucher and the receipt match.
2. Supporting documents have been stamped “paid” so they cannot be used to support other payments.
3. Add up the amount on the voucher and make sure that the calculated total matches the reimbursement sought.
7. Count the remaining funds on a regular basis
Petty cash on hand should be counted periodically, and the calculated cash reconciled with the balance in the petty cash account. Counting petty cash in detail is a means of verifying that a cash balance exists.
For the cash count to function as an effective control:
1. Calculations must be made by an independent person and the person holding the cash account.
2. Petty cash and supporting documents must be available at the time of calculation.
Conclusion
There are still many business people who are not aware of the importance of using cash records, even doing bookkeeping for their business.