What You Need to Know About Petty Cash Control
What is petty cash, anyway?
If you’re not familiar with the term, petty cash may sound like money that holds a grudge over little things or maybe a novelty dollar bill featuring the late, great Tom Petty. While the latter sounds pretty darn cool, that’s not what we’re talking about here.
Petty cash is a small fund kept on hand for minor expenses that pop up in the course of business. If you need to send someone out to the corner store for snacks or office supplies, it may be easier to send along a little cash than to hand them the company credit card. For a time like that, your petty cash fund comes to the rescue.
But any time you have a box of money lying around, there are precautions you need to take. So let’s talk about petty cash and what you can do to keep it under control.
Keeping your petty cash fund safe
Petty cash exists for convenience, but it’s not always the most secure way to handle money. You need to be intentional about how your petty cash fund is kept and who has access so you can avoid both theft and suspicion with your team.
Petty cash is for small expenditures, but the total you keep in the fund could still equal several hundred dollars. How do you know that money is secure and being used only for its intended purpose?
First of all, the money needs to have an intended purpose. You have to establish standards for who can spend petty cash, who needs to approve that spending, and how it should be documented (more on tracking in a minute). Only one person should have access to the petty cash fund, which should be kept in a secure location like a lockbox or a locked drawer.
According to a sound segregation of duties the person who holds the key shouldn’t be the same person who records petty cash transactions in your books. This is a basic internal control to prevent someone from misusing funds and covering their own tracks. While not recording the transactions, the keyholder will be responsible for making sure cash disbursals are written down in a petty cash log and any receipts are attached for proof and easy bookkeeping.
If you have a spread out campus or multiple departments, you may want to have a separate petty cash box in each. If everyone needs to make a pilgrimage to pick up petty cash, the convenience factor drops pretty quickly.
Tracking petty cash the right way
We’ve already torn the wrapping paper on this one a bit, but let’s talk about the right way to track petty cash.
A minute ago, we mentioned a petty cash log. This is likely to be just a notebook kept with the cash in your petty cash box. When someone uses cash from the box, the amount is recorded in the book, along with the date and use of the cash. If required to bring back a receipt (which we highly recommend) that will go into the book as well.
At the end of the month, your bookkeeper will reconcile the petty cash account to ensure that the cash in the box lines up with the entries. This is also an easy time to write a business check to cash and bring the petty cash balance back up to whatever amount you’ve determined is necessary. For instance, if you keep $500 in the box and $250 was used, it’s time to put another $250 in to prepare for next month.
Now the entries in the petty cash journal can be used to create a journal entry in your bookkeeping system. This will balance with that check you used to replenish the fund.
Alternatives to petty cash
Of course, with the world going more and more virtual and online payments getting easier, it’s becoming more convenient to minimize petty cash or bypass it completely.
In some cases, using that company credit card has gotten easier. For instance, using online payments to order that office pizza won’t require the company card to ever leave the office. Many transactions can be handled this way, with only one trusted employee ever touching the company credit card. Using a card makes tracking simple, as you can see exactly where money was spent.
What about when you need to send someone on an errand and they’re not on the shortlist for using that company card? Using a prepaid debit card in place of cash allows you to track exactly what was spent where, without worrying about loss or theft. The card can be reloaded quickly and managed easily.
Whether you go with cold hard cash, or find an alternative with debit or credit, a petty cash fund gives a lot of flexibility for small expenses. Follow a few simple petty cash controls and you can avoid problems, make record-keeping simple, and tip that pizza delivery person well.