At this point, the petty cash box has $75 to be used for small expenses with the authorization of the responsible manager. The journal entry to establish the petty cash fund would be as follows. Sometimes the petty cash custodian makes errors in making change from the fund or doesn’t receive correct amounts back from users. We post the discrepancy to an account called Cash Over and Short.
Next, total the amount of all the outstanding slips (plus attached receipts). This figure should be the same as the withdrawn sum you calculated from the account starting and ending balances. And the amount of cash you have in your storage box or drawer should be the same as the current balance of the account. On the downside, the convenience of petty cash can also make it a problem, and a risk. Cash is hard to secure and impossible to track; it's very easy for bills to disappear without a trace—even if you've established a careful system of receipts or vouchers. Petty cash refers specifically to money—literally, coins and bills—that a company keeps on hand for small outlays, usually because using cash is easier than using a check or credit card.
Step 3: Reimburse Receipts and Record Expense in the Petty Cash Log
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As we have discussed, one of the hardest assets to control within any organization is cash. One way to control cash is for an organization to require that all payments be petty cash made by check. However, there are situations in which it is not practical to use a check. For example, imagine that the Galaxy’s Best Yogurt runs out of milk one evening.
Replenish Petty Cash
At all times, the balance in the petty cash box should be equal to the cash in the box plus the receipts showing purchases. Every time a certain amount of petty cash is spent, the fund custodian should save a receipt. On a petty cash slip, the custodian can add the purpose and the date when the cash was spent or any additional information, depending on the company’s policy, and attach it to the receipt. Used to record an increase in the petty cash/ cash drawer balance authorized. This account is not changed unless there is a change in the value of the petty cash/cash drawer. All entries to reimburse the petty cash are charged to an operating account, not the original petty cash account.
When you or employees pay with petty cash, retain the receipt and attach the petty cash slip to the receipt for your records. Petty cash funds are useful alternatives to writing checks or using https://www.bookstime.com/ your business credit card to cover small expenses. Petty cash funds are used to purchase items for your business, reimburse employees who purchased business items, or to make change.
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The total of the receipts and remaining cash should equal the initial amount of petty cash funding at all times. However, recordation errors and theft may result in a variance from the initial funding amount. At the end of July, in the petty cash box there should be a receipt for the postage stamp purchase, a receipt for the milk, a receipt for the window cleaner, and the remaining cash. The employee in charge of the petty cash box should sign each receipt when the purchase is made. The total amount of purchases from the receipts ($45), plus the remaining cash in the box should total $75.