What Is Petty Cash

Petty cash funds enable many companies to avoid hassles of writing and signing number of checks and instead make easy cash payments. Petty cash is reflected as a “Petty cash expense” in the company’s yearly statement of accounts.

The amount maintained in the petty cash funds depends upon the needs and requirements of different companies. Some companies maintain a higher amount of petty cash balance in order to meet their daily and urgent purchase and sales requirements. While there are also number of companies which have a tendency to pay checks for larger amounts and maintain a small balance of petty cash to meet day to day administration or miscellaneous expenses.

Person handling a petty cash account is called as a custodian of petty cash. In case the custodian is unable to meet any short term petty cash requirement due to a shortage in petty cash funds, he may demand to cash the check and replenish it to meet the company expenses. However, a custodian is also equally responsible to provide an account for every transaction made out of a petty cash fund.

A custodian is also required to fill in a petty cash slip, voucher or maintain a log book to enter day to day transaction entries. The day to day expenses are clubbed together in a petty cash book in the form of vouchers. Every single voucher shows the name of the company, voucher number, ledger date, name of the recipients, amount, purpose and signature of the receiver and disburser of the petty cash. At times, a voucher is also accompanied with additional documents as required for the auditing purpose to provide detail clarification on expenses incurred by the company.

A petty cash book is a collection of vouchers prepared at the time of disbursing off cash from the petty cash funds. A petty cash book is deemed to provide the management with a complete record of petty expenses like office, entertainment, postage, stationary, welfare, traveling etc. At the end of the financial year this log book is utilized for the purpose of auditing and business tax.

A well maintained petty cash account serves as one of the most reliable means to describe the amount spent on regular and repeated expenses under the defined head or respective accounts.

It is of foremost importance for the custodian to safeguard his company’s petty cash funds. The funds needs to be kept in a safe and secured place. The access must also be restricted to none other than a custodian.

It is also important for every company to maintain strict rules and keep a daily check on funds and accounts in order to ensure that the petty cash amount is not utilized for personal expenses or either cashing personal checks.