What is Petty Cash?§
Petty cash refers to the small amount of money in the form of notes or coins that organizations keep on-hand to cover minor expenses. This cash reserve is used for expenditures that are too insignificant to warrant writing a check or processing through accounts payable. Petty cash is managed and recorded in a petty-cash book to ensure that all funds are accounted for accurately.
Examples§
- Office Supplies: Purchasing pens, paper, or other small office supplies that may be needed immediately.
- Employee Reimbursement: Reimbursing an employee for a minor out-of-pocket expense.
- Postage/Delivery: Costs associated with mailing documents or packages quickly.
- Miscellaneous Small Purchases: Buying snacks, minor decorations, or other small items used in day-to-day business operations.
Frequently Asked Questions (FAQs)§
How is petty cash managed?§
Petty cash is managed by a custodian who is responsible for maintaining the petty-cash book, issuing cash for expenses, retaining receipts, and reconciling the balance periodically.
How is petty cash recorded?§
Every transaction from the petty cash is recorded in a petty-cash book, which should always reflect the actual amount of cash remaining in the petty cash fund.
Why do companies use petty cash?§
Petty cash is used to streamline the payment process for small, immediate expenses, reducing the administrative overhead associated with processing checks or electronic payments for these minor transactions.
What controls are in place for petty cash?§
Companies typically have policies and procedures that include limits on the amount of petty cash, requirements for receipts, periodic reconciliation, and audits to ensure funds are used appropriately.
How often should petty cash be reconciled?§
The frequency of reconciliation varies by organization but is typically done on a weekly, bi-weekly, or monthly basis.
Related Terms§
- Float: The balance of money in the petty cash fund.
- Imprest System: A system where the petty cash fund is replenished to its original amount at regular intervals.
- Reconciliation: The process of balancing the petty cash book against actual cash remaining in the fund.
- Expense Report: Documentation submitted by employees for reimbursement of business-related expenses.
Online References§
- Investopedia - Petty Cash
- The Balance Small Business - What Is Petty Cash and How Is It Used?
- Corporate Finance Institute - Understanding Petty Cash
Suggested Books for Further Studies§
- “Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield
- “Accounting Made Simple: Accounting Explained in 100 Pages or Less” by Mike Piper
- “Financial Accounting for Dummies” by Maire Loughran
- “Accounting Handbook” by Jae K. Shim and Joel G. Siegel
Accounting Basics: “Petty Cash” Fundamentals Quiz§
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