Petty Cash


  • Petty Cash account defined
    1. "Petty Cash" is not the name of an expense account like "Supplies," "Repairs," and so forth.
    2. Do not write a check for some miscellaneous item and charge it to "Petty Cash."
    3. Petty Cash is a cash fund that should be treated as though it were a checking account.
    4. In QuickBooks you should create an account called "Petty Cash" as type called Bank.
  • Setting up the Petty Cash account.
    1. After getting a lockbox, canvass bag, or jar to keep the Petty Cash in, decide how much you will keep in Petty Cash.
    2. Let's say that you decide on $100.00. Write a check for $100.00 and charge this check only to Petty Cash.
    3. Cash the check.
    4. Put the cash in the lockbox, canvass bag, or jar.
  • How to pay a small expense from Petty Cash.
    1. While you were out, you bought $1.40 worth of postage stamps.
    2. You could write a check for $1.40 to yourself as reimbursement, but you do not want to write such small checks.
    3. Put the receipt for $1.40 in the petty cash container and take just that amount out.
    4. At any and all times, the total of the cash and the receipts in the petty cash container must equal $100.00.
    5. It is perfectly OK that the Balance Sheet always shows $100 in the Petty Cash account when it actually has less than $100 cash because it does have a total $100 combined cash and receipts at all times.
  • Replenishing the Petty Cash fund
    1. After several months, the cash remaining in the Petty Cash container is only $4.60.
    2. The receipts total $95.40.
    3. Add up the receipts by expense categories.
    4. Write a check to Cash for $95.40.
    5. Charge it to the various expenses, for example:

        Supplies

        34.11

        Repairs

        28.00

        Car Expense

        16.40

        Business Entertainment

        16.89
      1. Cash the check.
      2. Put the money back into the Petty Cash container.
      3. The total will be $100.00.
    6. Increasing the Petty Cash fund
      1. After a few weeks you realize that you are having to write the replenshment check every few weeks.
      2. The whole idea of having a Petty Cash fund is to make things simpler, not add one more frequent task.
      3. You decide that it would be much better if the Petty Cash fund were $300 instead of $100.
      4. Write a check for cash for $200. Charge it to Petty Cash. This will increase the "floating" balance to $300.
    7. Decreasing the Petty Cash fund
      1. A year later you decide that $300 in the Petty Cash fund is too much. You really only need $100 now because you are not using the fund as much now as a year ago.
      2. Take $200 cash out of the container.
      3. Make a bank deposit for $200.
      4. In QuickBooks, charge the $200 to Petty Cash.
      5. That will reduce the book balance to $100 from $300.

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