Petty Cash Fund and Petty Cash Voucher

Definition

Petty Cash Fund

A petty cash fund is a small amount of cash that an organization keeps on hand for minor, unforeseen expenses. Typically, this fund is used to pay for things like office supplies, postage, snacks, or any small, necessary purchase that can’t be deferred until the next company check run.

Petty Cash Voucher

A petty cash voucher is a document used to record the details of each petty cash transaction. This includes information such as the date, amount, purpose of the expenditure, and the signatures of the parties involved. These vouchers ensure that there is a clear and documented trail for each use of the petty cash fund, thereby maintaining accountability.

Examples

Office Supplies: An employee uses $10 from the petty cash fund to buy new pens and notebooks.
Postage: Spending $5 from the petty cash fund to mail some documents.
Employee Meals: An employee is reimbursed $20 from the petty cash for a team lunch during a training session.

Frequently Asked Questions (FAQs)

What is the purpose of a petty cash fund?

The purpose of a petty cash fund is to provide an efficient method to handle minor, routine expenses that arise unexpectedly and need to be paid immediately.

How is the petty cash fund replenished?

The petty cash fund is typically replenished by documenting all expenditures via petty cash vouchers and submitting them along with a replenishment request to the accounts payable department.

Who manages the petty cash fund?

Generally, an assigned petty cash custodian within the organization manages the petty cash fund, ensuring that all expenses are appropriately documented and accounted for.

What is an imprest system?

An imprest system is a financial accounting system used to control small disbursements by maintaining a petty cash fund at a fixed amount. When cash in the fund is spent, the exact amount is replenished to the original total via documented vouchers.

How often should a petty cash fund be reconciled?

The petty cash fund should ideally be reconciled at least once a month or whenever the fund is depleted and needs replenishing. Regular reconciliation helps ensure that all transactions are accurate and funds are accounted for.

Are petty cash expenses tax-deductible?

Yes, as long as the expenses are business-related and properly documented using vouchers, they are considered tax-deductible.

Imprest Fund

An imprest fund is a control system for managing a petty cash fund where the fund is maintained at a fixed amount, and any expenditures are reimbursed regularly to restore the fund to its original level.

Imprest System

The imprest system is a financial accounting process for managing small, routine expenditures through a fixed petty cash float. The system helps maintain strict control over petty cash by requiring documentation for every transaction and periodic replenishments.

Online References

Suggested Books for Further Studies

“Accounting Made Simple: Accounting Explained in 100 Pages or Less” by Mike Piper
“Financial Accounting For Dummies” by Maire Loughran
“Accounting Principles” by Jerry J. Weygandt, Paul D. Kimmel, and Donald E. Kieso
“Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield

Fundamentals of Petty Cash Fund: Accounting Basics Quiz

### What is the primary purpose of a petty cash fund? - [x] To handle minor, routine expenses - [ ] To pay employee salaries - [ ] To manage large-scale company projects - [ ] To invest in stocks and bonds > **Explanation:** The primary purpose of a petty cash fund is to handle minor, routine expenses that arise unexpectedly and need to be paid immediately. ### How is a petty cash fund typically replenished? - [ ] By taking out a loan - [x] By submitting vouchers and requesting a replenishment - [ ] By generating additional revenue - [ ] By transferring money from payroll > **Explanation:** The petty cash fund is typically replenished by documenting all expenditures via petty cash vouchers and submitting them along with a replenishment request to the accounts payable department. ### Who usually manages the petty cash fund? - [x] An assigned petty cash custodian - [ ] The company's CEO - [ ] All employees collectively - [ ] The external auditor > **Explanation:** Generally, an assigned petty cash custodian within the organization manages the petty cash fund, ensuring that all expenses are appropriately documented and accounted for. ### What is an imprest system? - [ ] A method of calculating depreciation - [ ] A type of savings account - [x] A financial accounting system to control small disbursements - [ ] A payroll management system > **Explanation:** An imprest system is a financial accounting system used to control small disbursements by maintaining a petty cash fund at a fixed amount, ensuring all expenses are properly documented and the fund is regularly replenished. ### How often should a petty cash fund ideally be reconciled? - [ ] Once a year - [ ] Every six months - [x] At least once a month - [ ] Never > **Explanation:** The petty cash fund should ideally be reconciled at least once a month or whenever the fund is depleted and needs replenishing, to ensure all transactions are accurate and funds are accounted for. ### Are petty cash expenses tax-deductible? - [x] Yes, if they are business-related and properly documented - [ ] No, petty cash expenses are never tax-deductible - [ ] Only expenses exceeding $100 are tax-deductible - [ ] Only expenses related to travel are tax-deductible > **Explanation:** Petty cash expenses are tax-deductible as long as they are business-related and properly documented using petty cash vouchers. ### What is included on a petty cash voucher? - [x] Date, amount, purpose, signatures - [ ] A detailed business plan - [ ] Employee's tax information - [ ] All of the company's financial statements > **Explanation:** A petty cash voucher includes details such as the date, amount, purpose of the expenditure, and the signatures of the parties involved. ### Can a petty cash fund be used for major capital expenditures? - [ ] Yes, it can be used for any type of expense - [x] No, it is meant for small, routine expenses - [ ] Only if the company is in a financial emergency - [ ] Only if approved by the board of directors > **Explanation:** A petty cash fund is meant for minor, routine expenses, not for major capital expenditures. ### What term is related to maintaining a petty cash fund? - [ ] Depreciation Schedule - [ ] Amortization Table - [x] Imprest System - [ ] Budget Forecast > **Explanation:** The term related to maintaining a petty cash fund is the Imprest System, which helps control small disbursements and ensures accountability. ### What happens if a petty cash fund is not regularly reconciled? - [ ] It automatically balances itself over time - [ ] The fund amount will increase - [ ] Custodian gets a bonus - [x] There may be discrepancies or misuse of funds > **Explanation:** If a petty cash fund is not regularly reconciled, there may be discrepancies or misuse of funds, leading to financial inaccuracies and potential accountability issues.

Thank you for exploring the significance of the petty cash fund and petty cash vouchers through this comprehensive guide and engaging quiz. Your journey in mastering the essentials of accounting continues to be vital. Keep striving for excellence!