Accounting and procedures for petty cash

3.3. Summarize expenditures for the period

At the end of the month, Vicki filled out the petty cash journal using the three vouchers, which she received from John, Kathy, and Amanda. Note that Vicki obtained vouchers for a total of $75 (i.e., $35.00 + $12.40 + $27.60).

A filled out petty cash journal is presented below:

Illustration 4: Filled out petty cash journal

petty_cash_journal_filled_out.png

As you can see, there was an error in handling cash during the month as the sum of vouchers ($75) and the remaining petty cash on hand ($24) equals $99 while the petty cash fund was established at $100. The difference of $1 is a cash shortage.

3.4. Replenish petty cash fund

The journal entry to post the monthly petty cash activity and related expenses is presented below:

Account Titles

Debit

Credit

Postage Expense 

12.40

 

Delivery Charges

35.00

 

Travel Expenses

27.60

 

Cash Short / Over

1.00

 

      Cash

 

76.00

When the journal entry is posted, Eric, the cash manager, issued a new check to Vicki, the custodian, for $76 (i.e., $75 expenses plus $1 to cover cash shortage). Vicki cashed the check and put the cash in the secure lock box to be used in the following month.

Those are usual activities and journal entries in accounting for petty cash.

4. Internal controls and best practices for petty cash

Petty cash is still cash and even though the fund amount we are talking about may be small, there is still a risk of fraud or theft. The controls put in place and described below may help

  1. Have a back up person handling the petty cash fund. Count cash and vouchers before transferring petty cash responsibilities to the back-up person.
  2. Before the petty cash fund can be replenished, the person writing the check to the petty cash fund should agree all vouchers and cash on hand to the total petty cash fund.
  3. Keep the petty cash fund in a locked storage (e.g., drawer or secure lock box).
  4. Don't make the petty cash fund too large which may become subject of theft.
  5. In cases deemed necessary, a manager or internal auditor can perform (announced or unannounced) audits of the petty cash fund to ensure the fund and vouchers balances.
  6. Petty cash vouchers should be sequentially numbered to ensure completeness and accountability.
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