2.3. Prepare petty cash journal and replenish petty cash fund

At the time the petty cash fund is to be replenished or at the end of a month, whichever comes first, the custodian summarizes all expenditures in a petty cash journal. The amounts entered into the petty cash journal come from the vouchers. An example of a petty cash journal is presented below (you can also download this MS Excel file for your use):

Illustration 2: Petty cash journal example

The petty cash journal lists all vouchers, their dates, the total amount of spending per voucher, and then individual amounts spent in respective expense account columns. The Total column should agree to the sum of all amounts in expense columns.

Underneath the table, there is a reconciliation of petty cash and vouchers to the petty cash fund:

• Total voucher amount shows the total amount of cash spent during the period. This amount comes from the last row – Totals – in column Total.
• Petty cash on hand represents the cash in the secure lock box on the date the petty cash journal is prepared.
• Total is the sum of the total voucher amount and petty cash on hand.
• Petty cash fund is the amount of the fund established for petty cash. As we noted earlier, this amount usually ranges from $100 to $500.
• Cash short / over is the difference between the Total and the Petty cash fund. Normally, the difference should be zero. However, sometimes the two amounts don't match. This indicates that some errors were made in recording voucher amounts, counting cash on hand, etc. If possible, the errors should be investigated and corrected. In cases when investigation still reveals a difference, it can be recorded as cash short / over. When the petty cash fund amount is higher than the sum of vouchers and petty cash on hand, there is cash shortage (loss); and vice versa, if the petty cash fund is lower, then there is cash overage (gain).

After the petty cash journal is prepared and reconciliation is completed, the journal should be signed by appropriate employees as evidence of their work on the journal.

The petty cash journal serves as the basis for the journal entry to record expenses and to replenish the petty cash fund.  The total in each expense column represents a debit entry, and the total of all debits represents the amount of cash to be replenished. Cash shortages or overages either increase or decrease the replenishing amount, respectively. The cash shortage is recorded as an expense, and the cash overage if recorded as an income. The journal entry looks like this:

The cash manager verifies all vouchers and petty cash on hand and then issues a new check for the amount of all debits (plus any cash shortages and less any cash overages) to the petty cash custodian to replenish the petty cash fund.

As you can see, the petty cash account is only debited once when the petty cash fund is established. Any journal entries after that don't impact the petty cash account. The only exception to this rule is when the petty cash fund amount is decreased or increased. When expenses are recorded, the cash account is impacted, not the petty cash account.

Note that this petty cash fund is also sometimes called an imprest fund because it is replenished when it becomes low.

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