When disbursing cash from the fund, the petty cash custodian prepares a petty cash voucher, which should be signed by the person receiving the funds. Only when the fund is reimbursed, or when the end of the accounting period arrives, does the firm make an entry in the journal.
Thus, using a petty cash fund avoids the need for making many entries for small amounts.
One of the conveniences of the petty cash fund is that payments from the fund require no journal entries at the time of payment. We will not use the petty cash in a journal entry again unless we are changing this original amount. The fund is now ready to be disbursed as needed. The following entry records this transaction as follows:Īfter the check is cashed, the petty cash custodian normally places the money in a small box that can be locked. The petty cash fund should be large enough to make disbursements for a reasonable period, such as a month. It is payable to the petty cash custodian. By assigning the responsibility for the fund to one individual, the company has internal control over the cash in the fund.Ī business establishes a petty cash fund by writing a check for, say, $100. Usually one individual, called the petty cash custodian or cashier, is responsible for the control of the petty cash fund and documenting the disbursements made from the fund. Here is a video of the petty cash process and then we will review the steps in detail. The petty cash account is a current asset and will have a normal debit balance (debit to increase and credit to decrease). 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. At times, every business finds it convenient to have small amounts of cash available for immediate payment of items such as delivery charges, postage stamps, taxi fares, supper money for employees working overtime, and other small items.
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