Petty Cash, Uses and Controls

Petty Cash Box

Petty cash is something that can get out of hand and is prone to theft if it is not monitored correctly. Petty cash is just a fund of cash on hand to use for small expenses instead of writing a check or using a credit card. Depending on the company and its needs the petty cash balance can vary. It is common to see a petty cash fund somewhere between $50 and $200. It keeps the balance within a manageable level.

Petty cash is typically used for things like a $15 expense reimbursement to an employee, $20 to purchase stamps or pay for a delivery charge, or $25 for delivery of lunch for a client/customer meeting. These are all small expenses , more easily handled with cash than cutting a check.

While it is easier to use cash for these items, having petty cash can become a problem if the proper controls are not in place and used. There are a few common controls that businesses can use to ensure petty cash is being accounted for correctly and the risk of theft is removed.

  1. Only one person should have access to the petty cash. All requests and distributions of petty cash should go through that person. The less hands in the cash box, the less chances for error. The cash box should also be locked so others can’t gain unauthorized access.
  2. For every distribution of cash, there should be a corresponding receipt or approved request form. With credit cards and checks there is a paper trail that you can go back to, with cash transactions there isn’t that secondary documentation so it is very important that every disbursement of cash has backup that corresponds exactly to the amount that was handed out.
  3. All replenishments of petty cash should come through a check request. The check request should include the reconciliation of the petty cash box (with receipts) to ensure that cash is only being requested as needed.
  4. A second person other than the one distributing cash should be reconciling the petty cash box. While it can vary from company to company, a monthly reconciliation is usually appropriate. A simple way of doing this is in an excel spreadsheet. Like a bank reconciliation, start with the balance from the last reconciliation add all check requests and replenishments and subtract all receipts. This will calculate what should be in the cash box. The last piece is to actually physically count the cash on hand. What is actually in the box, should match the reconciliation at all times. Completing this process on a monthly basis will eliminate opportunity to lose cash and will help find discrepancies faster.

Without the correct processes in place, petty cash can be very hard to reconcile. It also makes is difficult to ensure that all expenses are accounted for and that a business is not losing cash. Because there is not a secondary source tracking the cash on hand, like a bank, a petty cash account is an easy place to make errors, so it is very important to have strict controls. In relation to petty cash management is managing your cash register. For more controls on managing the front register of your store, take a look at our previous blog on Cash Register Management.

Written by:
Ashley Peth
TGG Accounting
 
 
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