Most small businesses need to use petty cash; this is money that is withdrawn from the bank account and used to buy small sundry items.
It is important to put procedures in place so that employees know what authorisation is required, and the expense is recorded in the accounting system.
If you are just a one-man band, you may find it more convenient to have a notebook with you and make a note of any cash spent, but a larger business will need to run a full system. It may include vouchers, spreadsheets, templates and seeking authorisation.
A voucher is used as a detailed record whenever some money is withdrawn. We have produced a Free Microsoft Excel voucher template for you to download.
The voucher will need to show the following information:
If the voucher is for an advance, ensure that the correct details are recorded when the change and receipt are returned.
In larger businesses a form may be used. The information required on the form will depend on the procedures of the company for withdrawing money and the authority which needs to be obtained.
You will need to put procedures in place and ensure that staff are made aware of them.
You will need to complete a reconciliation on a regular basis; this will ensure that money is not missing and that the vouchers are correct. The reconciliation can either be done when the box has not got much money left, each month or on a more regular basis.
You will need to have an opening balance, add all the money added and deduct all the expenses. The balance should equal the money remaining in the pot.
Record all the vouchers and money received in a book or an Excel template. The vouchers will need to be filed in date order and kept as part of your accounting records. If you are using bookkeeping software, record the figures in your accounts. The balance in your accounts should always equal the money in the box.
The figures are recorded by posting the expenses to the profit and loss account and reducing the petty cash balance on the balance sheet.
If you are recording money withdrawn from the bank, you will need to reduce the bank balance and increase your petty cash balance. These transactions will automatically be completed for you with some good bookkeeping software.
Stationery or online shops stock vouchers and books to assist with the task. They can make it easy to set up a system and keeping all the records in one place.
We have created a Microsoft Excel template, which you can download for free for your business.
It is designed to assist in managing your business's petty cash log; this free template is easy to use and will save time on your reconciliation.FREE Petty Cash Excel Template
Security is important as keeping it in an office is a tempting target unless it is kept secure. Make sure that it is kept under lock and key at all times with limited access. It is usually a good idea to make one person responsible for looking after it.
A locking box is usually a good idea, but if you are keeping a lot of money on business premises, overnight it is probably well worth investing in a secure safe and installing it securely.
Return from petty cash to Business Accounting Basics page.