The petty cash box: Keys & procedures for companies
A petty cash account can be a necessary evil for small day-to-day expenses. It gives businesses a quick and relatively simple way to pay for things without a company credit card or expense claims.
But it can also be tricky to manage, and rife with issues. Using petty cash often means not using more precise, secure options.
So how can you keep the petty cash box in order, without also creating unnecessary admin?
Here are the key things you need to keep in mind to manage petty cash well - preventing theft and keeping your books in order.
What is petty cash?
Even in today’s world of contactless payments and portable card readers, there’s still a place for cash. Those small, infrequent payments that need to be made right now are often a pain to pay by check or card, so cash it is. A petty cash fund allows you to cover those expenses or reimburse an employee who has already covered them out of pocket.
Petty cash is a small fund (often no more than $200) that’s maintained on an imprest system. With this system, you choose a predetermined “float” that you will keep in the petty cash account. This is the opening balance each month, and whatever amount has been spent is replaced to start the new month back at your chosen float balance.
Petty cash comes in handy when it’s time to tip the pizza delivery driver (we all know how much we need Grub Hub in this pandemic age) or send a team member out for coffee and donuts, or a recently exhausted office supply. For instance, let’s say the person running the errand doesn’t carry a company credit card, and writing a company check for the purchase is too big of a hassle.
Normally, they'd have to pay out of pocket (and wait to have the expense reimbursed). Instead, cash makes everything nice and simple.
But of course, the "simple" option can be somewhat risky.
Petty cash box procedures
Making sure that petty cash stays simple depends on a few petty cash management best practices and internal controls. First of all, the cash should be kept in a locked drawer or box, and the key should be in the hands of someone trustworthy.
That keyholder is the only one who can remove and disburse cash, and is also held accountable for the balance in the box at all times.
The keyholder is often a supervisor and should not be the bookkeeper responsible for recording the transactions at the end of the month. This basic segregation of duties is important.
If your office is spread out over multiple floors, you may need to have more than one petty cash fund, and more than one keyholder to keep things convenient.
When cash is needed, one simply goes to the keyholder and makes a request. The keyholder determines if the request is in line with petty cash policy and distributes the cash, replacing it with a voucher. The voucher includes the amount, the date, what the money is used for, and the signature of the person using the money.
This provides a strong paper trail to keep things in order and discourage theft. Some companies use a logbook, in place of vouchers, recording the same basic information.
Recording petty cash
On a day-to-day basis, the voucher system lets you keep track of cash going in and out of the petty cash box. At any given time, the remaining cash, plus the amounts on each voucher, should add up to the float. If not, something is wrong.
At the end of the month, your bookkeeper will record petty cash into the general ledger. First, they’ll ensure that the balances add up. Then they will record the petty cash transactions by debiting the appropriate expense accounts and crediting petty cash.
Finally, they’ll replenish petty cash by writing a check for the correct amount to bring the balance back to the predetermined float amount. This gets you ready to start the new month fresh.
What happens if the amounts don’t match up? Given the nature of cash and the chance of losing a few coins (or dropping them in a tip jar and forgetting about them), it’s not uncommon for petty cash to be off by a dollar or two.
In that case, the bookkeeper can create “cash over” and “cash under” accounts to record small discrepancies and net them out over time.
Replace petty cash with prepaid cards
Done correctly and following some basic internal controls, petty cash can be very helpful and make your day-to-day purchases a lot easier. It can save time compared to issuing checks and makes it possible to reimburse team members for small out-of-pocket purchases.
However, cash is always prone to theft and very hard to track. You can use the methods mentioned above to minimize the risks and maintain accountability, but it’s difficult to completely eliminate the risk.
As technology improves, there are some alternatives that are more secure than cash and can be just as convenient. Prepaid expense cards are one of the best options.
These cards can be held securely and given to the employee when needed. You’ll have a traceable record of purchases and no loose change to track down.
And as an added bonus, these cards avoid the paper trail that comes with the voucher system described above. Since everything is digitally recorded, there's no need to keep notes.
Petty cash is a nice, simple workaround for companies which aren't set up to handle small employee payments. Hopefully this article has explained the basics, so you're ready to implement this system in your own business.
But companies can go even further with prepaid cards. Every team member can safely spend whatever they need, with no risk of abuse.
Learn more about modern companies manage spend without wasting time or creating hurdles for teams: