Keeping up with small day to day expenses can become overwhelming for a small business owner. A company often has to pay small amounts for such items as postage, office supplies, or minor repairs. Although small, such payments may occur often enough to total a significant amount. Writing a check for such small amounts in not practical and using your bank card could cause you bank balance to reduce to an unexpected amount and important payments may go unpaid. Thus, instead, a business owner may choose to maintain a special cash fund, called a petty cash fund.
Generally, a petty cash fund is established by estimating the amount of payments needed from the fund during a period, such as a week or a month. A check is then written and cashed for this amount. To ensure this special account is managed on a daily basis, business owners will choose a responsible team member to disburse money from the fund as needed. For control purposes, the company may place restrictions on the maximum amount and the types of payments that can be made from the fund. Each time money is paid from petty cash, the responsible team member, records the details on a petty cash receipts form.
The petty cash fund is normally replenished at periodic intervals, when it is depleted, or reaches a minimum amount. To illustrate, assume a petty cash fund of $500 is established on June 1.
June 1 Petty Cash 500
A key thing to remember is that the only time Petty Cash is debited is when the fund is initially established, as shown in the preceding entry, or when the fund is increased.
To support with the control of the petty cash account a business owner should establish clear business goals with the development of an extensive guide. This guide will outline the purpose of a petty cash account, applicable expenses the funds should be disbursed for and how often. An established guide would be a great reference tool.
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