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Petty Cash Fund

April 13, 2006

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Set up a petty cash fund if you need cash on hand to pay miscellaneous small expenses of your business.

If yours is a retail business with cash on hand, you probably don't need a petty cash fund. Just be sure to carefully record all cash paid out of the cash register. Preparing a cash sheet at the end of the day will help control cash paid out of the register.

A petty cash fund is set up and used as follows:

1. Start a petty cash fund by writing a check to "Petty Cash." Cash the check.
2. Physically place the cash in a petty cash drawer or petty cash box.
3. As you pay for expenses out of petty cash, keep an itemized list of each expenditure.
4. When the cash is almost depleted, add up the expenses on your itemized list.
5. Write another check to "Petty Cash" for the total of the expenses. That check should replenish the fund back to the initial balance.

You decide to set up a petty cash fund to pay small expenses that you don't pay by check. You feel a petty cash fund of $100 is necessary, so you write a $100 check payable to "Petty Cash." You physically place the $100 in a petty cash box. Make the following entry in your cash disbursements journal:

Two weeks later, you review the petty cash box and find that there is $25.00 left. You add up the items listed on the expenditures list, and you are happy to find that they add up to $75.00 (25 + 75 = 100). You write a check, payable to "Petty Cash," for $75.00. The cash is placed in the petty cash box. This replenishes the fund back to $100. Using the list of petty cash expenditures as your source document, make the following entry in your cash disbursements journal:

The petty cash drawer or box should be locked when not in use. Only one person should have access to the petty cash, so that one person is held accountable for it.

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