Petty Cash Fund

Topics: Petty cash, Replenishment, C-41 process Pages: 3 (927 words) Published: July 21, 2013
Petty cash fund is a relatively small amount of cash that businesses keep on hand for the purpose of small transactions such as providing change to customers, postage expenses, highway tolls etc. In such transactions, the use of checks is time consuming, costly or illogical. Usually a custodian is appointed to administer the petty cash and it is his/her duty to account for the expenses incurred out of petty cash fund. Whenever the custodian makes any payment from the fund to an employee or a customer etc., he or she must record the amount being disbursed, the name of the person to whom the payment is being made and the reason for the disbursement. Following are the typical transactions connected to petty cash fund. 1. Creation: Petty cash fund may be created by drawing a check on the company's checking account and handing it over to the custodian of the fund. The journal entry is to debit petty cash and credit cash at bank. 2. Disbursements: Individual disbursements from petty cash are not recorded via a journal entry. Instead journal entry is passed at the time of each replenishment and at the end of the period for the total amount disbursed. 3. Replenishment: When the balance in petty cash becomes low, a journal entry is passed debiting various expense accounts and crediting petty cash for the sum of disbursements made. Then petty cash is replenished usually via a check. 4. Raising Fund Level: When the volume of transactions to be handled by the petty cash grows, the fund level is raised. The journal entry is to debit the petty cash and credit cash at bank.

Familiarize yourself with the purpose of the petty cash fund. The fund should be used for very small expenses, like buying stamps or envelopes, paying a small delivery fee, or paying a cab fare. It should not be used for large purchases; these should be paid for by check in order to leave a record.

Decide on the amount of the petty cash fund. The fund should generally not hold more...
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