You might debit multiple accounts, depending on how often you update your books for petty cash accounting. 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. Consider keeping your petty cash locked in a drawer, safe, or filing cabinet. The Cash Short (Over) account is an income statement type account. For example, a retailer will compare daily cash sales to the actual cash found in the cash register drawers.
Petty cash replenishment journal entry
At the same time, receipts are removed from the petty cash box and formally recorded as expenses. After review and approval, the cash will transfer from bank to replenish the petty cash balance. They will record decreased cash in bank balance and increase expenses based on the actual expense. This petty cash replenishment journal entry is one of many bookkeeping entries used in accounting, discover another at the links below. The accounting records will show the following bookkeeping entries when the business withdraws cash to replenish the petty cash fund. Petty cash is a small amount of money kept on hand to cover small expenses such as office supplies or minor repairs.
The Accounting Equation
To permit these cash disbursements and still maintain adequate control over cash, companies frequently establish a petty cash fund of a round figure such as $100 or $500. The petty cash account is a current asset and will have a normal debit balance (debit to increase and credit to decrease). Here is a video of the petty cash process and then we will review the steps in detail. To permit these cash disbursements and still maintain adequate control over cash, companies frequently establish a petty cash fund of a round figure such as $100 or $500. The staff has used petty cash to pay for the taxi $ 100, office supplies $ 200, and other expenses $ 100.
Cash Flow Statement
Hence, it is more efficient to just record all those expenses with the cash account directly. The second journal entry is debiting petty cash $ 400 and credit cash on hand $ 400. Company ABC uses the petty cash for the expense amount $ replenishing petty cash fund journal entry 400 and the remaining balance is only $ 100.
- These errors cause the cash in the fund to be more or less than the amount of the fund less the total vouchers.
- To illustrate, we will close the $100 original petty cash fund by returning the cash to the checking account with a debit to cash and a credit to petty cash.
- And if it is a cash overage, we will record it on the credit side instead.
Petty cash do’s and don’ts
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. A designated employee, the petty cash custodian, accounts for your business’s use of petty cash. When an employee takes money from the petty cash fund, the petty cash custodian must record who took the money, the amount taken, what the money is for, and the date. At the month-end, cashier prepare replenish report and receives cash from bank to refill the petty cash balance. They need to record expenses based on each category and decrease the cash in bank balance.
On April 15, 2024, your business used $100 from the petty cash fund to pay for a taxi ride for a business meeting. Assume that during January 2024, you used petty cash to pay for office supplies ($120) and postage ($80). Some businesses put $50 into their petty cash fund while others put $250—the amount of your fund depends on your business needs. As your business grows, you may need to re-evaluate the amount you keep in your petty cash fund. Following are the typical transactions connected to petty cash fund. The transaction will increase expenses and decrease cash at bank.
- The responsible person will allow to use the petty cash based on company policy and attached to the proper document.
- In the next section, we’ll look at one of the most important cash controls, the bank reconciliation process, in detail.
- As a company grows, it may find a need to increase the base size of its petty cash fund.
- Mary is the petty cash custodian who is the only person handling the petty cash transactions.
- Managing a petty cash fund efficiently requires accurate petty cash journal entries and regular replenishment.
- Let’s assume that a company has a petty cash fund of $100 and its general ledger account Petty Cash has a debit balance of $100.
ABC has set petty cash for some time already, so there is no journal entry to record the petty cash at the beginning of the month. They simply increase petty cash balance and deduct cash at the bank. Imprest petty cash is the system that company keeps the cash balance on the petty cash account and the transaction will not impact its account again. Petty cash ensures that businesses can quickly address minor expenses without needing a lengthy approval process. Proper management of petty cash through accurate journal entries helps maintain financial accuracy and transparency. After all, the petty cash expenses will only be recorded when we make petty replenishment.
Adjustments must be made formally and with updated approvals if company policy requires.
It should be noted that there is no entry made to the petty cash fund. With an imprest system the balance on the fund (cash + vouchers) is always constant (300). The cash added to the fund simply replaces the expense vouchers. The total petty cash expenditure is 60 (supplies 40 + postage 20).