A Guide to Petty Cash Fund

Many small businesses use a petty cash fund. Money is taken from the bank account to pay for small cash expenses like coffee, postage stamps, or stationery.

The term refers to a set amount of cash you’ve placed in a secure location, typically a safe, lockable box or drawer. In other words, petty cash funds are readily available but not usually accessible.

They may be used to purchase office supplies and small items, allowing for greater flexibility in your business’s purchases than relying solely on a standard bank account.

How Much Cash on Hand should I keep?

The amount of cash kept is often determined by an organisation’s size and frequency of use. Small companies can get away with £50, while larger companies may need £100 or more.

Large businesses keep more in the kitty because they use it more frequently than smaller businesses. They also ensure enough funds so they won’t run out when needed.

What is a Petty Cash Voucher?

It is a form or slip that usually accompanies a withdrawal of funds from petty cash. The money will have been withdrawn for a specific, identifiable purpose, and the voucher records these details and explains what was purchased and how much it cost. They are ideal for recording transactions in the petty cash account.

How to Complete a Petty Cash Voucher?

Many organisations have a standard method that should be followed for each withdrawal. However, it can vary depending on the size of your business.

We have created a Free Microsoft Excel voucher template for download and use.

The voucher will need to show the following information:

• A unique voucher number
• The date the money is withdrawn
• Details of the transaction include as much information as possible
• The total amount of withdrawal
• Attach any receipts to the voucher
• Make sure the correct person authorises the voucher

Ensure the correct details are recorded if the voucher is for an advance. You may need to update the information when the change and receipt are returned.

In larger businesses, a form may be used. The information on the form will depend on the company’s procedures for withdrawing money and the authority that needs to be obtained.

Petty Cash Vouchers Example

The above voucher shows that 50.00 was taken from the petty cash fund, a change of 14.52 was returned, and the remaining 35.48 was spent. The receipt is attached to the voucher.

Petty Cash Transactions

Petty Cash is a small amount of cash, small enough to be kept in a petty cash drawer or safe, used to conduct “small” transactions within the scope of your company’s activity. For example, you can use it at the grocery store, cafe or office supplies. Several different transactions are done in petty cash.

The transactions include:

• Taking money from the bank account
• Giving an advance for a payment
• Reimbursing an employee of purchases
• Providing change to a client
• Making a sale by cash

Petty Cash Receipts

Receipts are documents that show proof of purchase. To ensure an accurate record of your purchases, the petty cash receipts should always match up with a specific voucher and be attached.

You should also issue a cash receipt when receiving cash from customers. It can be a simple form, or cash receipt books are available.

How do I Manage Petty Cash Procedures?

Business owners should have procedures to ensure employees know how to handle small expenses. Establishing these procedures in advance will provide staff with a clear understanding of what they should do if they need to use petty cash.

• Use a locked petty cash box and ensure that only a few people know where the box and key are stored.
• Choose an appropriate float amount. This will vary from business to business, but most companies keep £100. This amount will need to be withdrawn from the bank.
• Put the money in the box and record your transaction in a book or an Excel template.
• When money is withdrawn from the petty cash box, fill out a form or voucher.
• The money in the box plus the vouchers should always equal the original amount in the box. If you have a £100 float and the vouchers add up to £65, you should have £35 remaining in the box.

Petty cash tins are available to purchase from Amazon.

What to Do if Petty Cash Fund is Running Low?

If the petty cash fund is running low, the process for replenishing it is as follows:

You can write a cheque and cash it at a bank.

You can also withdraw money from a cash point. The funds will be recorded in a petty cash book.

Petty Cash Account Reconciliation

It is important to regularly reconcile the petty cash box to ensure that no money is missing and that all vouchers are correct. The reconciliation can be done monthly or more frequently if needed.

Start by calculating the petty cash account opening balance to do the reconciliation. Then, list all the money that has been received or spent. The balance should equal the actual cash remaining in the float.

When you receive money in your petty cash tin, you need to keep track of it. This means recording all the vouchers and funds 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. Your petty cash account balance should always equal the money in the box.

Petty Cash Accounting Records

Keeping accurate records of all transactions is essential when dealing with petty cash. This will help you keep track of your expenses and ensure your balance is not too low. The best way to do this is by recording all the transactions in a book or some good accounting software.

The figures are recorded by posting the expense accounts 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 must reduce the bank balance and increase your petty cash balance. These transactions will automatically be completed for you with some good bookkeeping software.

Is Petty Cash an Asset?

Petty cash funds are part of an organisation’s assets. They work similarly to a bank account and will have a general ledger code allocated.

However, the small nature of these accounts means auditors and small business owners often overlook them.

Petty Cash Book

A petty cash book records all transactions involving petty cash. It can be used to set up a system and keep all the records in one place. Books are available online and in stationery shops.

Excel Petty Cash Log Template

We have created a Microsoft Excel petty cash template, which you can download for free for your business.

This free template is designed to help you manage your business’s petty cash log. It is easy to use and will save you time on your reconciliation.

What are the Alternatives to Petty Cash

There are a few different options instead of handling cash.

Employees may be issued with bank debit cards. This has the disadvantage of not obtaining all receipts and having many transactions that aren’t recognised in the bank. It might also provide an employee with limitless cash that isn’t agreed upon.

A payment card for expenses may be a more secure and convenient option than cash. This allows users to keep track of all expenditures and restrict their spending.

Use business expenses to claim back payments for sundry items, although staff are out of pocket until they are paid expenses.

Petty Cash Security

As a business owner, keeping your petty cash safe and secure is essential to avoid theft. This can be done by implementing simple security measures, such as keeping the cash in a locked box or safe with limited access, making one person responsible for looking after it, and investing in a secure safe if you need to store a more significant amount on site.

Return from petty cash to the Business Accounting Basics page.