Petty Cash Management: A Good Practice System

Petty cash is a float that gets replenished monthly and is a convenient way to reimburse staff for company purchases or to cover minor expenses. Petty cash is considered a current asset on the balance sheet.

Having a system to manage petty cash is crucial so that it reconciles each month. Some systems to put in place are:

• Appoint one person to be responsible for handling disbursements. Assign a second person to enter the receipts into the accounting system and issue replenishment. Separation of function when handling cash is good business practice to prevent an opportunity for fraud.
• A maximum limit should be set for items that can be reimbursed through petty cash. A $100 limit is reasonable but it should be based on your company’s needs. Generally, there should be enough funds to last for the month.
• Keep a record of all disbursements as this is very important for reconciliations. Attach receipts to this record to support disbursements.
• A reconciliation should be performed at the end of each month or sooner if the funds get low. Expenditures should be entered into your accounting system to keep an accurate record of expenses. Once reconciled, a replenishment check should be issued to “top up” the petty cash to its original amount.

Once the reconciliation is completed and entered into your accounting system, the amount reported on the general ledger should be equal to the replenished cash on hand.

If you would like to discuss ways to implement or improve your petty cash management, contact Grant Gilmour.

Your comments are welcome!

Author: Grant Gilmour has been in the CA business since 1988, starting his own practice in 1994. His tax expertise encompasses tax planning, international tax issues, and Scientific Research and Development tax credits. He is a graduate of the CICA In-Depth Tax Course and in 2012, Grant received the CA Community Service Award and the Scout Leader Medal.