Why would a business set up a petty cash fund? (2024)

Why would a business set up a petty cash fund?

The purpose of a petty cash fund is to provide business units with sufficient cash to cover minor expenditures.

Why would a business use a petty cash fund?

Petty cash provides convenience for small transactions for which issuing a check or a corporate credit card is unreasonable or unacceptable. The small amount of cash that a company considers petty will vary, with many companies keeping between $100 and $500 as a petty cash fund.

What happens when a company establishes a petty cash fund?

As this petty cash fund is established, the account titled “Petty Cash” is created; this is an asset on the balance sheet of many small businesses. In this case, the cash account, which includes checking accounts, is decreased, while the funds are moved to the petty cash account.

Why do some businesses keep a petty cash book?

It is easy to record transactions in a petty cash book. Avoids confusion by recording petty expenses separately. It saves time and effort of the chief cashier. It is audited at the end of an accounting period, therefore there is less chance of errors.

Why is it important to have a petty cash system?

Importance of a petty cash system

It assists in updating cash transaction records and allows division of labour in an organization. It can be used to control petty expenses since it allows for comparison of the petty expenses incurred between two periods.

What is a petty cash policy for a small business?

A petty cash policy is a document that outlines a company's expectations on how employees will use the petty cash fund, and explains how the custodian keeps the fund secure and safe. It's often shared in employee onboarding documents and handbooks so everyone is on the same page.

What should petty cash not be used for?

Petty Cash Funds may not be used for personal loans, reimbursem*nts of purchases made on personal credit cards or debit cards, travel expenses, or taxes for which the University is not liable (e.g. sales tax, freight taxes, or federal excise taxes).

What are the rules for petty cash fund?

Petty cash funds should be properly secured at all times. Access to the funds should be restricted to one person (e.g., the petty cash custodian or a specified cashier). Cash on hand and receipts for disbursem*nts made should always equal the assigned amount of the petty cash fund.

What are the rules for petty cash?

All Petty Cash Funds must be stored in a secured device such as a safe or cash box in a locked cabinet. Only the Petty Cash Fund custodian should have keys to the box and cabinet. Funds should never be left unattended and unsecured. Funds within a box need to be locked and behind locked doors when not attended.

How do companies handle petty cash?

Generally, most branches and departments maintaining a petty cash fund will set it up in a locked box. A petty cash custodian is responsible for opening, maintaining, and recording petty cash. Petty cash management helps businesses properly maintain these funds.

Who should keep petty cash?

Appoint a Custodian

The custodian will be the primary person in the organization responsible for managing the petty cash. Designating a custodian establishes accountability and reduces the incidence of error or fraud by minimizing the number of employees who have access to the cash in the fund.

What is the limit of petty cash?

The nominal amount stored in the form of cash which an organisation deems petty will vary across companies. However, most organisations maintain a petty cash reserve in the range of Rs 5,000 to Rs 20,000. The following are some of the transactions for which petty cash is made use of: Office stationeries.

Who should hold petty cash?

One person – the petty cash “custodian” – is responsible for tracking funds disbursed and replenishing the fund when needed. Some companies require receipts for disbursem*nt and others use petty cash vouchers from an office supply store to itemize how the money was spent and who spent it.

What are the disadvantages of a petty cash book?

Disadvantages of petty cash book

If there are no limits set on the expenses, there is a high possibility of overspending. This method has a high chance of theft of petty cash by employees. And it will be difficult to track the source. This method is outdated and inefficient and is not suitable for large businesses.

Why is petty cash risky?

Without adequate monitoring and internal controls, however, petty cash can increase an entity's risk of misuse, theft or fraud.

Can petty cash be used for personal expenses?

Administering Petty Cash and Cash Drawer Accounts

Receipts should be given for all payments from petty cash. The receipts should contain the date, name of individual receiving cash, amount of cash and business purpose. Funds should not be used for personal expenses.

What types of expenses can be paid using petty cash?

Do you need receipts for petty cash?

You need to keep all of your receipts, petty cash vouchers (to fill in when payments are made from the tin) and a record of the 'top ups' i.e. the amount to top petty cash up at the end of a period.

How do you take money out of a petty cash fund?

What is the first step to start the petty cash fund?

Steps to Start a Petty Cash Fund

To start, decide the right amount of money for daily costs. Guidelines for valid expenses should also be set. Choose a trustworthy custodian to manage the fund. They must record all transactions and keep receipts.

How to establish a petty cash fund?

Companies assign responsibility for the petty cash fund to a person called the petty cash custodian or petty cashier. To establish a petty cash fund, someone must write a check to the petty cash custodian, who cashes the check and keeps the money in a locked file or cash box.

What are the two types of petty cash?

Is petty cash an asset or expense?

Yes. Petty cash is a current asset. Current assets are assets that provide economic benefit within one year. Since petty cash funds can resolve scenarios with readily available cash, this can be considered as providing economic benefits.

What are the 7 steps in setting up your petty cash fund?

Is petty cash still a thing?

Cash transactions have been on the decline for decades and plummeted even more in recent years due to the pandemic. Even so, some businesses still choose to keep a petty cash fund.