The Petty Cash Fund

The journal entry to replenish the petty cash account will be as follows. This is to ease the process of recording the accounting transactions and this usually works very well as long as there is proper petty petty cash cash control in place (e.g. dual signatures). In business, we usually need to replenish the petty cash fund when our petty cash box reaches a certain level of the fund or when it is about to be empty.

Nonetheless, the accounting for both items is similar since they involve spending or receiving money. Credit cash and write your next petty cash check for the combined total of the money taken from petty cash, $81.27. $81.27 plus the $18.73 already in the lock box restores petty cash to $100.

Increasing/Decreasing Petty Cash/Cash Drawer Funds or Closing an Account

When it’s time to record expenses, such as the end of the month, go back to the Petty Cash Register and click Add Expense. You need to create an expense entry for each receipt that you’re recording from the lockbox. Since Heather is running out of cash, she may ask for replenishment.

As your business grows, you may need to re-evaluate the amount you keep in your petty cash fund. In accounting, we usually record the cash transaction immediately into our accounting record https://www.bookstime.com/ whether it is the cash inflow or the cash outflow from the company. However, when there is a petty cash outflow, we usually do not record it into the accounting record immediately.

Time Value of Money

Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own.

• After all, the petty cash fund is established in the first place in order to handle the small expenses that occur in our day-to-day operation.
• The reason for replenishing the fund at the end of the accounting period is that no record of the fund expenditures is in the accounts until the check is written and a journal entry is made.
• In the process Mary discovers that the vouchers add up to only $79.
• The replenishment of funds is an important step in the successful management of resources.

Require that employees maintain a running petty cash log for every transaction, including receipts. Each entry in the petty cash book should include the date, the amount, and what was purchased with the petty cash. Review your petty cash register before you replenish the petty cash fund. Most people use petty cash for things like buying office supplies, paying for postage, and so on. 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.

What Is the Difference in Establishing and Replenishing Petty Cash?

The Galaxy’s Best Yogurt establishes a petty cash fund on July 1 by cashing a check for $75 from its checking account and placing cash in the petty cash box. 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.

• To ensure efficient management of resources, the replenishment of money allocated for small purchases must be regularly monitored.
• The petty cash account is a current asset and will have a normal debit balance (debit to increase and credit to decrease).
• In accounting software, this entry will add the petty cash check to your print checks list.
• At the end of an accounting period a count of the petty cash shows that the fund contains cash of 240 and expense vouchers for supplies of 40 and postage of 20.
• Consider keeping your petty cash locked in a drawer, safe, or filing cabinet.
• When it’s time to record expenses, such as the end of the month, go back to the Petty Cash Register and click Add Expense.

Hence, it is more efficient to just record all those expenses with the cash account directly. Company needs to record expenses on the income statement and increase the petty cash balance to $ 500. Company ABC uses the petty cash for the expense amount $ 400 and the remaining balance is only $ 100. Sometimes, the company decides to combine the transactions above without touching the petty cash account. The transaction will end up impacting the expense account and cash-on-hand account. The petty cash is used to pay for the small expenses that suppliers do not allow to purchase on credit.

Any discrepancy should be debited or credited to an account called Cash Over and Short. The Cash Over and Short account can be either an expense (short) or a revenue (over), depending on whether it has a debit or credit balance. After the owner or bookkeeper records all expenses in the books, cash must be taken from the checking account to replenish the petty cash box. Record the transfer of cash by debiting Petty Cash and crediting Checking Account.

• Accurately tracking and recording the petty cash fund is essential for accounting purposes.
• If the balance in the petty cash account is supposed to be $75, then the petty cash box should contain $45 in signed receipts and $30 in cash.
• This will ensure that the company’s financial statements are up to date and that the petty cash fund is properly replenished.
• The transaction will end up impacting the expense account and cash-on-hand account.
• The cashier creates a journal entry to record the petty cash receipts.
• In this case, the cash account, which includes checking accounts, is decreased, while the funds are moved to the petty cash account.