What does it mean to replenish the petty cash fund?

petty cash replenishment

The petty cash account is a current asset and will have a normal debit balance (debit to increase and credit to decrease). Here is a video of the petty cash process and then we will review the steps in detail. The accounting records will show the following bookkeeping entries when the business withdraws cash to replenish the petty cash fund.

The cashier creates a journal entry to record the petty cash receipts. This is a credit to the petty cash account, and probably debits to several different expense accounts, such as the office supplies account (depending upon what was purchased with the cash). The balance in the petty cash account should now be the same as the amount at which it started. Petty cash is a small amount of cash that is kept on the company premises to pay for minor cash needs. Examples of these payments are office supplies, cards, flowers, and so forth.

When petty cash gets low, always check the balance with receipts before adding more. To replenish the fund, write a company check to “Petty Cash,” cash it and add the money to the box. The receipts and petty cash reconciliation sheet go to the bookkeeper for entry into the accounting system. A petty cash fund is a small amount of cash kept on hand to pay for minor expenses, such as office supplies or reimbursements.

Example of Replenishing Petty Cash

While some retail businesses run small expenses out of their tills, a proper petty cash system means setting aside a fixed amount of money in a box or drawer and using it to pay for small expenses. The receipts for the expenses go into the box along with any change from the transactions. The total of the receipts and the remaining cash should always equal the amount you started with. For example, if you have a $100 petty cash fund and spend $27.52 on office supplies, your receipt for the purchase plus the remaining money in the fund will add up to $100. Most companies keep a small amount of cash on hand to pay minor business-related expenses that don’t warrant the writing of a check or use of the corporate credit card.

The journal entry for giving the custodian more cash is a debit to the petty cash fund and a credit to cash. The petty cash account should be reconciled and replenished every month to ensure the account is balanced and any variances are accounted for. The accountant should write a check made out to “Petty Cash” for the amount of expenses paid for with the petty cash that month to bring the account back up to the original amount. The check should be cashed at the company’s bank and the cash placed back in the petty cash safe or lock box. When the fund requires more cash or at the end of an accounting period, the petty cash custodian requests a check for the difference between the cash on hand and the total assigned to the fund.

How to Journalize Petty Cash Replenishment

At this time, the person who provides cash to the custodian should examine the vouchers to verify their legitimacy. The transaction that replenishes the petty cash fund is recorded with a compound entry that debits all relevant asset or expense accounts and credits cash.

A petty cash fund between $100 and $500 is sufficient for many small businesses. Most people use petty cash for things like buying office supplies, paying for postage, and so on. Petty cash is a common form of imprest system (I.E. financial accounting system), and is a pre-designated amount that’s built into the budget and replenished after a set period of time or when it runs out. A petty cash system helps businesses pay small expenses quickly without recording each transaction. It is a separate fund of cash that is set aside to pay for supplies or other low-dollar expenses.

When you’re ready to replenish the fund, record the expenses in your accounting software based on the petty cash expense log. Then, record the replenishment by debiting the petty cash account and crediting the bank account you used to refill the fund. This should be small enough that employees won’t be tempted to steal it but large enough that you don’t have to replenish it too often. Pick a dollar amount you think will cover small office expenses for a month or so.

Accounting Principles I

Consequently, petty cash balances are rarely updated just to improve the accuracy of the financial statements. Keep petty cash funds in a secure area such as a locked drawer or small safe.Ensure segregation of duties. The purpose of a petty cash fund is to provide business units with sufficient cash to cover minor expenditures. The intent is to simplify the reimbursement of staff members and visitors for small expenses that generally do not Exceed $25.00, such as taxi fares, postage, office supplies, etc. Managing your petty cash funds begins as soon as the first check has been cashed to create the petty cash float.

A petty cash fund will undergo periodic reconciliations, with transactions also recorded on the financial statements. There might be a petty cash fund, which can be a drawer or box, in each department for larger corporations. The petty cash custodian refills the petty cash drawer or box, which should now contain the original amount of cash that was designated for the fund.

  • While some retail businesses run small expenses out of their tills, a proper petty cash system means setting aside a fixed amount of money in a box or drawer and using it to pay for small expenses.
  • The total of the receipts and the remaining cash should always equal the amount you started with.
  • The receipts for the expenses go into the box along with any change from the transactions.

Petty cash is stored in a petty cash drawer or box near where it is most needed. There may be several petty cash locations in a larger business, probably one per building or even one per department.

To control the petty cash fund properly and record it correctly for tax purposes, the fund should be stored in a secure location and reconciled frequently. Business units should evaluate their business needs and limit the petty cash account to the lowest amount that will meet those needs. That’s a long way of saying it’s “shoebox money” for expenses which are usually too small to bother using a credit card or writing a check. When a petty cash fund is in use, petty cash transactions are still recorded on financial statements.

For example, if you have decided on a petty cash fund for $100, your petty cash account book entry will show a debit of $100 to your petty cash fund and a credit of $100 to your bank account. A petty cash fund can be used for office supplies, cards for customers, flowers, paying for a catered lunch for employees, or reimbursing employees for expenses.

A petty cash fund is a convenient method to pay for small business transactions such as postage, delivery fees or emergency office supplies. It is important to keep accurate records of all petty cash expenditures for bookkeeping purposes. The IRS requires receipts for all expenses over $75, but it is a good habit to get receipts for every petty cash transaction, no matter how small. The receipts will provide the backup to the petty cash replenishment checks when you need to top up the fund.

How do you record replenishment of petty cash?

Definition of Replenishing Petty Cash Replenishing the petty cash fund means the petty cash custodian requests and receives cash from the company’s regular checking account in an amount that will return the cash on hand to the amount shown in the general ledger account Petty Cash.

petty cash replenishment

When the cash balance in the fund is low, the custodian prepares a replenishment request. Attached to this request are the receipts from the cash box for all expenditures made from the fund. The request will indicate the general ledger account where the expenses for each receipt are to be charged. As a best practice, a standard format should be used for the petty cash replenishment report.

A petty cash fund is a certain amount of cash that is kept in a separate location to pay for minor business expenses that periodically arise. Usually the fund is assigned to a single person who is responsible for securing the fund, disbursing cash as needed, and keeping records of transactions. The amount of cash kept in the fund depends on the nature of the business, as well as the amounts and frequency of transactions. The amount listed in the petty cash account is almost always overstated, since the various petty cash custodians are always disbursing petty cash in exchange for receipts for expenses incurred.

How often is a petty cash fund replenished?

For this reason, companies typically establish a petty cash fund that needs to be replenished every two to four weeks.

Consider the journal entry below, which is made after the custodian requests $130 to replenish the petty cash fund and submits vouchers that fall into one of three categories. The custodian of the petty cash fund will monitor the fund balance on a regular basis.

When petty cash is used for business expenses, the appropriate expense account — such as office supplies or employee reimbursement — should be expensed. Petty cash is a small amount of money, but it adds up quickly as it’s replenished. To track the cash, create a petty cash account in the asset section of your chart of accounts.

Remember, for all journal entries, total debits must equal total credits. To permit these cash disbursements and still maintain adequate control over cash, companies frequently establish a petty cash fund of a round figure such as $100 or $500.

A separate accounting system is used to track petty cash transactions. Petty cash is a current asset and should be listed as a debit on the company balance sheet. To initially fund a petty cash account, the accountant should write a check made out to “Petty Cash” for the desired amount of cash to keep on hand and then cash the check at the company’s bank. The journal entry on the balance sheet should list a debit to the business bank account and a credit to the petty cash account.

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