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Petty cash is a dedicated pot of money that’s used for your business’s small purchases.
It might be there for buying stationery for the office, or reimbursing a member of staff who bought coffees for a client meeting.
Managing petty cash forms part of your accounting and bookkeeping system, so it’s still important to keep tight control over its spending.
For a petty cash definition, it’s the fund that’s used for small business expenses. These are usually day-to-day items that don’t need to go through a purchase order system.
Petty cash is usually easily available to employees who request to use the fund. But only one trusted person should have access to the actual cash, who then authorises and records the purchases.
It’s important to keep the fund safe by locking it in a petty cash box and keeping that in a secure place.
The maximum amount allowed to be spent in a single petty cash purchase will vary from business to business, but it’s usually between £25 and £100.
The amount of money kept in the petty cash box is often around £100.
You might want to come up with a petty cash policy that answers questions like how much petty cash people can use for a purchase, in addition to:
After you’ve developed a petty cash policy, it’s important to come up with a tight system to help you manage petty cash.
The first step is giving one senior and trusted person within your business control over the petty cash box.
This could be who already looks after your business’s finances. They can withdraw petty cash from the business bank account, topping it up when needed.
Then you can use a petty cash book, as well as petty cash vouchers, to help you control the process.
You can buy one of these from a stationery shop, or use a petty cash template downloaded online.
You’ll enter all the money going in and out of the petty cash box, with sections for:
The balance should be updated each time money goes out or comes into the petty cash box.
What’s more, you should let employees know that they need to keep receipts of their purchases. If you’re reclaiming VAT, you should have the valid VAT invoices or receipts.
A petty cash voucher is issued when petty cash is used for a purchase. It should show the date of the purchase, who authorised it, along with the amount, a description of the purchase, and a unique voucher number.
The petty cash vouchers for the period should equal the amount of cash that’s been taken out, as recorded in the book.
Receipts for the purchases can be attached to the vouchers, making it easier to keep track of what’s going on.
Reconciliation means making sure that what’s recorded in your petty cash book matches up with the vouchers and the actual amount in the box.
You reconcile it by:
Petty cash is recorded in your bookkeeping. A reduction in your bank balance should show up as an increase in your petty cash amount.
It should also show up on your balance sheet as an asset.
Do you have a petty cash process at your business? Let us know in the comments below.
Sam has more than 10 years of experience in writing for financial services. He specialises in illuminating complicated topics, from IR35 to ISAs, and identifying emerging trends that audiences want to know about. Sam spent five years at Simply Business, where he was Senior Copywriter.
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