Petty Cash Purchase Journal Entry
Petty cash purchases are a common practice used by businesses to pay for small, miscellaneous expenses. These transactions are typically conducted with cash and are recorded in the company’s general ledger.
Petty cash is used to reimburse employees for low-cost purchases made on behalf of the company. Petty cash is a useful tool for businesses since it is instantaneous and efficient. Employees no longer have to wait for a check to be cleared or for the vendor to accept a credit card. Furthermore, it eliminates the need to pay a fee for using a credit card or other payment methods.
For businesses with frequent small purchases, having a petty cash fund can help streamline transactions. Petty cash is also a good way to ensure that employees are reimbursed quickly and accurately. When employees make purchases on behalf of the company, they can be reimbursed through the petty cash fund, eliminating the need to submit lengthy expense reports. This saves the company both time and money, as the cash can be easily accessed and tracked.
Petty Cash Purchase Journal Entry
The Petty Cash Purchase Journal Entry provides a record of the company’s expenditures and can help to inform future financial decisions. The entry is made up of two parts: the debit and the credit.
On the debit side, the expenditures or assets are recorded. On the credit side, the petty cash balance is reduced.
| Account | Debit | Credit |
| Expense or Assets | XXX | |
| Petty Cash | XXX |
The Petty Cash Purchase Journal Entry is important for tracking company expenses and ensuring that the petty cash balance remains accurate. By tracking expenditures, companies can make informed financial decisions and ensure that their resources are being allocated correctly.
Benefits of Using Petty Cash
Utilizing a petty cash system provides businesses with an accessible and convenient way to cover their small expenses. It is especially useful when company credit cards are not available or when employees would rather not wait for reimbursement. This system also eliminates the need to issue checks for each individual transaction. This makes it easier to pay for small purchases without the hassle of paperwork.
Employees who receive petty cash can also benefit from this system. They can use the cash to pay for business expenses without having to wait for reimbursements. This eliminates the need for reimbursements and makes it easier to manage expenses. It also makes it easier to track expenses as the purchase is recorded in the petty cash journal.
The use of petty cash also simplifies the process of reconciling cash transactions. Since petty cash is a form of payment, it can be tracked along with other cash transactions, making it easier to reconcile statements and ensure accuracy. This ultimately reduces the risk of errors and discrepancies.
Establishing a Petty Cash Fund
Establishing a fund for covering small expenses is an efficient way to manage business transactions. A petty cash fund is typically used for this purpose, and it requires certain steps to be taken in order to do so.
The first step is to select a custodian and cashier who will be in charge of managing the petty cash fund. It’s important to choose someone who is trustworthy and reliable as they will be in control of the money.
The next step is to determine the amount of money for the fund. This should be done in line with the purpose of the fund, as the amount should be enough to cover small expenses, but not too much to create risks.
Finally, it is important to select a maximum amount for petty cash requests. This will help to ensure that the fund is not overused or abused. Additionally, it will help to ensure that the fund is managed properly and efficiently.
Setting Up a Petty Cash Log
Once the fund and custodian are in place, it is important to set up a log to record all transactions and purchases made from the petty cash fund. This log should be organized and detailed, and should include the date, item purchased, amount of the purchase, vendor/payee, and the purpose of the purchase.
Keeping a record of the fund’s activity will help the custodian to manage the funds more efficiently and help ensure that the funds are being used for their intended purpose. It is also important to ensure that the log is kept up-to-date in order to avoid any discrepancies in the total amount of the fund.
Providing a secure environment for the log will help to protect the fund from any potential misuse or theft. Access to the log should be limited to the custodian or other authorized personnel. All personnel who have access to the log should be trained in how to use the log and must adhere to the policies and procedures set forth for the fund.
Having an organized and secure petty cash log will help to ensure that the fund is managed efficiently and that all transactions are tracked and accounted for. This will help to ensure that the fund is used responsibly and within its intended purpose.
Petty Cash Reimbursement Procedures
When an employee has made an approved purchase from the fund, they must submit a receipt and completed form for reimbursement. The form must include the following information:
- Date of purchase
- Amount spent
- Purpose of purchase
- Payment recipient
The petty cash custodian is responsible for reviewing and approving the voucher before reimbursing the employee. It is essential that the custodian keep a record of all approved reimbursements and payments.
In addition, the custodian must ensure that the petty cash fund never exceeds the authorized amount. Any discrepancies in the petty cash log must be reported to the appropriate personnel in a timely manner. The custodian must also ensure that all receipts are stored in a secure location.
Petty Cash Auditing
After discussing the reimbursement procedures for petty cash, auditing is the next step for maintaining an accurate record of petty cash expenditures. Auditing involves verifying the accuracy of the reported expenditures as well as ensuring that all proper procedures are followed in the handling of petty cash.
| Method | Responsibility | Procedure |
|---|---|---|
| Identify | Person responsible for petty cash | Count currency, coins, and other items stored with petty cash |
| Audit | Person responsible for petty cash | Check vouchers and receipts for legitimacy |
| Add | Person responsible for petty cash | Add cash total to voucher total and compare with last audit |
Auditing is an important step in the petty cash procedure as it helps to prevent fraud and embezzlement. It is important for the auditing process to be done regularly and accurately to ensure the safekeeping of the petty cash funds. The audit log should be signed and archived along with receipts and vouchers to provide evidence of the audit. Additionally, the storage location should be inspected and access to the funds should be restricted to the custodian or other authorized personnel.
Petty Cash Alternatives
In addition to the traditional petty cash system, there are other methods of payment that can be used to cover small purchases.
One option is company credit cards, which can be used to cover minor expenses. The payment is made on behalf of the company, with the employee then reimbursed for the purchase. This helps to ensure that the company is not out of pocket for any expenses.
The use of prepaid debit cards is also a viable alternative to petty cash. These cards are often used for employee reimbursements and can be used for small purchases without the need for a formal audit. They also offer more security than traditional petty cash, as the card can be monitored to prevent fraudulent use.
Finally, employee reimbursements are another option for covering small purchases. This method allows employees to purchase items with their own money and be reimbursed for the cost. This eliminates the need for a formal accounting system, as the money is simply transferred from the employee’s account to the company’s account. However, it does require the employee to have access to their own funds, making it less suitable for businesses with limited budgets.
Overall, there are a variety of alternatives to the traditional petty cash system. Company credit cards, prepaid debit cards, and employee reimbursements are all viable options that can be used to cover small purchases. Each option has its own advantages and disadvantages, and the best method will depend on the individual needs of the business.
Conclusion
In conclusion, petty cash is an effective way to manage small, day-to-day expenses. By establishing a petty cash fund and keeping a log of transactions, it is possible to ensure that the money is being used responsibly and that it is allocated in the most efficient way.
Additionally, regular audits can be conducted to ensure that the petty cash fund is not being abused. Furthermore, there are several alternatives to petty cash, such as debit cards or electronic transfers, which may be more suitable for certain businesses.