3. Example of accounting for petty cash

Let's look at an example of how petty cash accounting and procedures are performed at Company ABC. The company decided to create a petty cash fund in amount of $100 at the beginning of February 20X1.

Vicki Smith was named the petty cash custodian; employees John, Kathy, and Amanda will sometimes use petty cash to make small business-related purchases; Eric Doe is the cash manager (all names are imaginary and do not correspond to real persons).

At the beginning of the month Eric issued a check for $100 to Vicki to set up the petty cash fund. Vicki cashed the check and placed the $100 into a secure lock box in her office drawer.

During February 20X1 John, Kathy and Amanda made one small purchase each and were reimbursed by Vicki Smith from the petty cash fund. All employees signed the vouchers and presented purchase receipts to Vicki. The purchases were as follows:

• $35.00 for delivery charges on February 12, 20X1 (John)
• $12.40 for postage on February 23, 20X1 (Kathy)
• $27.60 for small travel expenses on February 27, 20X1 (Amanda)

We will see now what actions and journal entries were completed in February by the company employees.

3.1. Establish petty cash fund

To establish the petty cash fund, the following journal entry was made after Vicki cashed the check from Eric:

3.2. Disburse cash for expenditures

During the month, three employees (John, Kathy, and Amanda) made small business-related purchases. Vicki, the petty cash custodian, reimbursed the employees for the expenses incurred and obtained petty cash vouchers and purchase receipts from the employees. An example of one such voucher is presented below:

Illustration 3: Filled out petty cash voucher

Vicki took the vouchers and purchase receipts and placed them in the secure lock box with the remaining petty cash.

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