You know how everyone likes to have a little extra cash on hand for those unexpected expenses? Well, your business is no different. So why not set up a petty cash account with a small amount of money that can be used for things like running to the hardware store or office supply store?
The important thing is to keep track of all the expenses associated with the account. You should also keep receipts for all expenditures. At the end of each month, you can reconcile the account by categorizing all the expenses and then making a journal entry to debit the relevant expense account and credit petty cash. This way, you can start each month with a clean slate and a full understanding of where your money went the previous month.
President of CFO Simplified, Larry Chester, explained in detail how to do petty cash the right way.
Petty cash is a small amount of cash that businesses keep on hand for small, routine purchases. This cash is typically kept in a petty cash fund, which is a designated bank account or drawer that is used specifically for petty cash expenditures.
While having petty cash on hand can be convenient, it’s important to manage it responsibly. Keep track of all petty cash expenditures in a petty cash journal or log, and reconcile the account on a regular basis. This will help you ensure that your petty cash fund doesn’t get too low – or too high! – and that all expenses are accounted for.
When managed correctly, petty cash can be a helpful tool for businesses of all sizes. Use these tips to ensure that your petty cash fund is well-managed and serves its purpose.
According to Larry, companies keep anywhere from a couple of hundred dollars to $1,000. And the amount of money isn’t really important. What’s important is that it’s an amount of money that you are comfortable with for your company.
Larry shares that, “-the important thing is that you do track those expenses on an ongoing basis, because just like any other expense for your company, miscellaneous expenses add up, and having petty cash is no different”.
Business owners can consider building a spreadsheet to keep track of petty cash. The spreadsheet can include information such as:
For the amount, Larry recommends three columns for:
Larry adds, “what you have to do is keep a receipt for each one of those expenditures. I mean, that’s tracking your expenditures and tracking the documentation of the money that’s being spent. So at the end of the month, what you want to do is replenish and reconcile that account just like you do any other account in your company”.
You then want to,
And it’s important that when you do those entries that you total them and then that spreadsheet is a reconciliation of all the expenses that were made.
This is necessary so that at the start of a new month, there is a fully funded cash box with a total reconciliation of all expenses made. This will enable accuracy in tracking finances.
There are a few key reasons why it’s important to reconcile your petty cash fund regularly. First, it helps to ensure that the fund is being used correctly and that all of the money is accounted for. Second, it allows you to keep track of spending and identify any potential areas where money may be going missing. Finally, reconciling your petty cash fund on a regular basis helps to maintain accurate financial records.
If you don’t reconcile your petty cash fund regularly, it can become very easy for things to get out of sync. This can lead to problems down the line, so it’s best to stay on top of it. By reconciling your petty cash fund regularly, you can avoid any potential issues and keep your finances in good order.
If you’re interested in hearing more from Larry, check out his video on Reconciling Your Accounts.
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