Tips – Setup and Maintain Petty Cash
Almost all businesses use petty cash. I have discovered that many clients do not correctly record petty cash transactions in Total Office Manager.
First, your petty cash account should be set up in Total Office Manager under the “Chart of Accounts” by selecting “Bank” as the type of account. There are a couple of ways to handle petty cash transactions. However, I think the easiest method is to record the petty cash balance in full, say $300, and, when a check is written to replenish petty cash, this check should be split among the appropriate expense accounts based on petty cash expense receipts. Thus, your check to “Cash” would be split among office supplies, repairs, etc.
Often, clients record the check to replenish petty cash to the account “Petty Cash” rather than expense accounts. Recording the check to “Petty Cash” in Total Office Manager increases your petty cash balance by the amount of the check without reflecting your cash expenses . For example, assume you have paper receipts in your petty cash box for $88.45 spent for office supplies. If you write a check to “Cash” and apply the check to “Petty Cash”, your petty cash balance is increased to $388.45 and none of the $88.45 in office supplies expense has been recorded. By recording the check to “Office Supplies” instead, your petty cash balance remains $300 and the $88.45 expense is recorded.
Here is a very common bookkeeping error when it comes to petty cash accounts. Only the opening and closing entries should affect the actual Petty Cash account on your books. All transactions should be posted directly to the affected expense accounts.
When you establish your “petty cash” fund, be sure to record it on your books. Create a new “bank” account named Petty Cash. Banks differ in their requirements for accepting checks payable for cash — I recommend that you create a new vendor named “Company Petty Cash” (with your company name ) as the payee on all checks written to keep the petty cash account funded. To fund the petty cash account, write a check for your fund limit and cash the check. Keep a log that will track all expenses paid from the petty cash fund. It should reflect information such as date, amount, payee, and what was purchased. Attach matching receipts to the log.
When it is time to replenish the money in petty cash, total the receipts and reconcile them against the entries on the log. Cash remaining plus total of the receipts should always equal your fund limit. Write a check for the total of the receipts, and split the posting to reflect various expenses.
Example: You establish a petty cash fund of $100 for your company XYZ Service. At the end of the month, you have $47.27 cash remaining and receipts for the following: Postmaster, $34, stamps; Wal-Mart, $12.63, cleaning supplies; Office Depot, $6.10, staples/paper clips.
Your first check would be payable to XYZ Service Petty Cash for $100
Full $100.00 posted to the new Petty Cash bank account .
Your next check would be payable to XYZ Service Petty Cash for $52.73
$34.00 posted to Postage Expense.
$12.63 posted to Supplies Expense.
$6.10 posted to Office Supplies Expense.