Such disbursements are a common problem in petty cash, where there is a high risk of fraud. Also, since most petty cash custodians are not trained as accountants, they may incorrectly record disbursements. For these reasons, a petty cash reconciliation should be conducted https://www.kelleysbookkeeping.com/journal-entries-for-credit-card-transactions/ at regular intervals. The review can be treated as an audit, which means not warning the petty cash custodian of the arrival of the reviewer. This lack of warning is useful for detecting any personal withdrawals from the petty cash fund by the custodian.
One of the conveniences of the petty cash fund is that payments from the fund require no journal entries at the time of payment. Thus, using a petty cash fund avoids the need for making many entries for small amounts. Only when the fund is reimbursed, or when the end of the accounting period arrives, does the firm make an entry in the journal. The replenish will move the cash from other accounts to the petty cash account.
The check is cashed and the money is placed under the control of one designated individual. This ensures that one individual can be held responsible for all the cash in the fund. A petty cash fund is a small fund whose purpose is to make small disbursements of cash. Most businesses will reserve enough cash in their fund to meet their monthly needs.
Investigate any differences between the stated amount of the petty cash fund and the actual total of cash and vouchers. If the difference is unexplained, complete a voucher stating the unexplained amount, and charge it to a predetermined what is a credit memo departmental account in the general ledger. Write a check to cash for the money you need to restore the original balance. If the combined total equaled the original balance, write the check for the Total Withdrawals amount.
Making Disbursements From the Fund
For petty cash reconciliation, subtract the amount in your petty cash fund from the amount stated in your books. Compare this amount to the total amount listed on your receipts to determine if your accounts are equal. Lastly, you should choose a maximum amount that employees can request for petty cash transactions. If the employee needs to spend more than the petty cash request limit, they can use the business credit card.
- Write the amount of the check you wrote for petty cash after this entry.
- The total of the receipts and remaining cash should equal the initial amount of petty cash funding at all times.
- The second journal entry is debiting petty cash and credit cash on hand (any cash account).
- Most businesses will reserve enough cash in their fund to meet their monthly needs.
- Maybe you have an unexpected client drop by and you want to send out for bottled water or soft drinks.
- Financial accountants (and independent auditors) are generally not concerned with petty cash because of the immateriality of the amounts.
Write the amount of the check you wrote for petty cash after this entry. Write “CR” (Credit) and “Petty Cash” next and write the same amount as the amount of cash you placed into the petty cash box. Cash on hand may also include undeposited cash you have if you have a cash register, such as in retail. You have to keep enough cash on hand to make change for customers and accept payments in cash for those customers who do not use credit or debit cards. Finally, surprise petty cash counts should be made to maintain good internal control over the fund. Another entry to petty cash is not made unless the firm wants to increase or decrease the fund above or below $100.
Popular Double Entry Bookkeeping Examples
When petty cash is expended, the employee must provide a receipt and explain the purpose of the purchase. Petty cash can be a convenient way for businesses to handle small expenses, but it is important to keep track of all expenditures to avoid overspending. To improve the way you handle petty cash accounting, require a petty cash receipt for each transaction. And, create a petty cash slip indicating the amount, employee’s name, and date when you give employees petty cash. When you or employees pay with petty cash, retain the receipt and attach the petty cash slip to the receipt for your records. Next, let’s assume that there is only $20.00 in cash remaining and Mary realizes that $20 is not sufficient.
Mary is the petty cash custodian who is the only person handling the petty cash transactions. At all times Mary should have some combination of cash and petty cash vouchers (receipts) that are equal to $100. The Cash Over and Short account will be used to balance the entry when the cash needed to get back to the petty cash account does not match the total of petty cash vouchers.
What is petty cash?
She needs to obtain a company check for $80 in order to cash it and return the cash amount to $100 (the amount shown in the Petty Cash account). The petty cash vouchers provide the documentation for the $80 check request. In the process Mary discovers that the vouchers add up to only $79. Mary will debit the accounts indicated on the petty cash vouchers and then debit Cash Short and Over for $1 (the amount that is not accounted for).
How do you write a check to replenish petty cash?
The journal entry is debiting expense $ 400 and credit petty cash $ 400. First of all, there is always the potential for theft or misappropriation of funds. If the petty cash is not properly secured, it could be easy for someone with ill intentions to take the money. If receipts are not properly tracked and filed, it can be difficult to account for all of the expenses. This can lead to problems down the road, especially if an audit is conducted. This petty cash replenishment journal entry is one of many bookkeeping entries used in accounting, discover another at the links below.
The logical first step is to document the reimbursement, for example by writing out a receipt. The next step is to enter both an expense and an asset account on your books under “petty cash”. If you are reimbursed $20 for postage expenses, debit postage expense $20 and credit cash $20. A petty cash reconciliation is a formal review of petty cash records. The intent of this activity is to see if there have been any undocumented disbursements.