Petty cash

Businesses often need small amounts of cash for expenditures where it is not practical to make the disbursement by check.

The most common way of accounting for these expenditures is to use the imprest method. The initial fund would be created by issuing a check for the desired amount. Usually $100 would be sufficient for most business needs. The entry for this initial fund would be to debit Petty Cash and credit cash.

As expenditures are made the custodian of the fund will reimburse employees and secure a petty cash voucher in return. At any given time the total of cash on hand plus reimbursed vouchers must equal $100.

When the fund gets low the custodion submits the vouchers for reimbursement and assuming that $80 is needed a check for $80 is issued and if all expenditures were for office expenses the debit would be to office expenses not to petty cash and the fund would be intact at $100.

Control of petty cash is important because the potemtial for abuse is always present. A limit on disbursements should be set. Usually any expenditure over 10% {in this case $10) of the fund should be paid by check. Peridic audits by a person other than the custodian should be made monthly. Vouchers for use in reimbursement are available at any office supply store and should be used.