How to use petty cash correctly
When business owners have to purchase small items for their business, such as stamps or to reimburse a member of staff for small purchases or travel costs. The chances are they will use petty cash. The word petty means (minor or small). It’s used world wide by most small business on a weekly basis, but, is it used correctly?
I’ve worked for a fare few businesses over the years’ where they have no clue how to use correct procedures. Even when it is a key element of a businesses financial system.
I’ve put together some key points for handling your petty cash procedures correctly;
- Use a locked box. Make sure that only the petty cash custodian and their deputy know where the box and key are stored
- Put the money in the box and record your transaction in either a petty cash book or in an Excel template
- Decide on an appropriate float amount, this will vary from business to business, most businesses keep £100. This amount will need to be initially withdrawn from your business bank account
- When money is withdrawn from the box fill out a voucher
- The money in the box plus the vouchers should always equal the original amount of money in the box. If you have a £100 float and the vouchers add up to £5.00 you should have £95 remaining in the box
Petty Cash Reconciliation
You will need to do the petty cash reconciliation on a regular basis, this will ensure that money is not missing and that the vouchers are correct. The reconciliation can either be done, each month or on a more regular basis.
Record all the vouchers and money received in a cash book or an Excel template. File the vouchers in date order and keep them as part of your accounting records. If you are using bookkeeping software, record the figures in your accounts. The balance in your accounts should always equal the money in the box.
The petty cash balance is recorded by posting the expenses to the profit and loss account and reducing the petty cash balance on the balance sheet.
If you are recording money withdrawn from the bank, you will need to reduce the bank balance and increase your petty cash balance. These transactions will automatically be completed for you with some good bookkeeping software.
Put procedures in place and ensure that staff are made aware of them.
If you need further help or advice, drop me an email I’d be happy to help.