What is petty cash?
A small amount of cash that an organization keeps on hand for paying minor or incidental expenses is called petty cash. Petty cash is part of the general cash account and is shown as a current asset on the balance sheet. To create a petty cash fund, an organization writes a check to the petty cash custodian, who is responsible for keeping the cash and issuing receipts or vouchers for any expenses paid from the fund. The check amount is not recorded as an expense but as a cash transfer. When the fund needs replenishment, the custodian submits the receipts or vouchers to the accounting department, which records the expenses in the general ledger. Petty cash is usually a small amount, ranged ₹10000 to ₹30000, and varies depending on the size and needs of the organization.
Understanding Petty Cash
Petty cash is a small sum of money an organization keeps in hand for minor transactions that are not worth issuing a bank cheque or a demand draft.
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Office Supplies
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Office stationeries
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Reimbursing Employees for the amount they paid for the office
Each department has an executive responsible for managing the petty cash fund. This involves following the rules for using petty cash, disbursing, and replenishing petty cash regularly.
Journal Entries
A small amount of cash is used to pay for minor expenses and must be refilled. The custodian collects all the receipts and slips given to different organization members. The details are entered in General Ledger as credits to the petty cash account, while the same is debited to various other expense accounts. When the petty fund is topped up, it is entered as a debit to the petty cash account and credit to the cash account. This is how a petty cash transaction is shown on financial statements even when already used. The expenses or purchases made with this cash are not part of the journal entries. The journal entry, however, is only made when the custodian needs more cash than what was authorized by the company. The journal entries are made when the custodian gets new funds in exchange for the receipts.