5 Steps on Setting Up and Managing Petty Cash Account
Regardless of the size of your business, it is essential to have a petty cash account. This account will cover small expenses as well as employee reimbursements. A few things that would be paid for out of this account are parcel shipping costs, small supplies purchases, and travel allowances.
Typically, any expense covered by the petty cash fund will not be any more than $25. The purpose of having this account is to cover expenses that are too small to write a cheque (check?) for. After all, when you have a business, you have to log each transaction so that you can track your finances accurately.
Here are 5 easy steps to set up a petty cash account:
Start a petty cash fund
You can start a petty cash fund by writing a check or by withdrawing an amount of money from your company. The amount shouldn’t be too high or too low. If your business is small, chances are that you won’t need any more than $100. In contrast, if your business is large and has several divisions, you will need to withdraw more and distribute the petty cash to each division.
Cash the checks
Once you hand out the check for the petty cash fund, you can cash the check in advance of any requests for reimbursement. You have to make sure that the amount of cash in the account is reasonable. Make sure that you consider the size of your business as well as your needs before settling on an amount.
Secure the petty cash
After you get the money, you should find a drawer, box, or safe for the petty cash. The place where you put the fund needs to be secured and completely locked up. Designate a location for the petty cash fund and don’t move it. There should be only two people responsible for the fund in each division. One person to replenish the fund and the other to record the transactions into your system.
List out the petty cash expenses
Don’t forget to keep track of how much petty cash you reimburse to the employees. Along with this list, there should be receipts for each payment so that there is evidence to back up your expenditures. Make sure that you debit and credit the amount spent in a disbursements journal.
Replenish the fund
The last step is to replenish the fund whenever it runs low. Sometimes, the petty cash fund is insufficient because the company has set the amount too low. This is why you should set the amount of petty cash in the fund according to the size of the company and limit the number of purchases that can be reimbursed from the it.
These are the easy five steps to set up and manage a petty cash account. Remember - no matter how big or small your company is, a petty cash fund is not something that you should overlook because it will save you time when you are trying to track small expenses and create a well-organized system.
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