Added by on 2012-09-25

We do not yet have a completely cashless society. This is unfortunate for business owners, because managing petty cash is time consuming and often prone to error – out of all proportion to the amount of money involved.

To avoid petty cash issues, as much as possible make all payments by cheque. However, there remain some small but essential day-to-day expenses, such as parking fees, coffee and meals, for which it is not possible or convenient to pay by cheque. In many cases, these can be paid by business credit card.

Therefore, petty cash is usually essential in any business, big or small. The key to managing it successfully is to make sure that, whatever system you have in place, it works for you and is not abused.

The alternative is that you request employees pay for expenses themselves and they seek reimbursement through payroll. This may avoid the need for petty cash altogether.

Operating Petty Cash

If you run a smaller business, you may manage perfectly well with diary entries for petty cash, but for larger businesses, the best way to operate a petty cash fund is the imprest system (imprest is the sum drawn to establish the fund).

Arrange for one person to manage your petty cash and record all payments in a petty cash book.

When a staff member produces a receipt, setting out explicitly what they have purchased, they are reimbursed from petty cash. Unless, that is, the amount due is above a preset limit, in which case they should be paid by cheque.

As payments are reimbursed from the fund, the original float will be gradually depleted and it becomes necessary to reimburse the fund. You will now need to replenish the petty cash fund.

The petty cash book should have a summary of:

  • the expenditures
  • a list of the amount of petty cash approved
  • the amount of cash on hand
  • the amount of money requested.
    ll of these should equal the expenditure receipts. Also include the account to be charged.

You then need to “audit” the receipts and supporting documentation, verify totals, generate a cheque, cash it and the money placed back in the petty cash box.

Control Your Petty Cash Expenses

The major issue in a retail/service business is the control of cash as it can easily be used inappropriately. You should take action if the amount of money flowing through petty cash is too great or if it takes up too much administrative time.

Possible causes of the problem Solutions
Too many items are paid out of petty cash Tell staff what they may use, and not use, petty cash forSubstitute vouchers for petty cash reimbursements, such as taxi charges

Issue credit cards. Deduct any claims not supportedby invoices
from wages

Open monthly accounts with certain retailers

Supporting receipts not demanded from claimants Insist that all petty cash claims are supported by third party receipts
No set maximum amount per claim Set a maximum amount allowable per claim of (say) $50
Failure to carry out regular reconciliation Reconcile the petty cash float regularly
Failure to have claims authorised by senior staff responsible for the expense incurred Make senior employees or yourself responsible for authorising the expense before money is spent on behalf of the business
Failure to make a specific person responsible for petty cash Assign task to one person

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