Assets are all items a company owns and uses in its business operations. Petty cash represents a small cash fund a company uses to make small purchases. Companies will often have a cash box with some money that employees can use to pay minor bills or lunch for executives, among other uses. Like all financial activities in a firm, proper petty cash accounting is a must.
Petty cash falls under a company’s current asset classification. Current assets last less than 12 months in most firms. The company will usually record the starting petty cash value under the current assets section of the general ledger. As the company uses the cash, it will post entries that reflect use and repayments to maintain the standard petty cash amount.
Companies often use an imprest petty cash fund. This method requires a simple review process for listing expenditures and replenishing the cash. A small form allows individuals to write down how much money is currently in the petty cash fund and any related expenses. Other information includes purchases made with petty cash, frequency of use and replenishing process. Many firms refill petty cash on a monthly basis, although it may be less frequent.
Internal controls protect the assets of a firm. Petty cash controls include restricting access to the cash, requiring receipts for used funds, reconciling the cash box each month and receiving proper authorization to refill the cash box. These controls help protect the funds and limit their use for inappropriate purchases.
Companies can implement a petty cash fund at multiple office locations. For each petty cash fund in the firm, an entry is necessary to report the fund in a company’s general ledger. A designation will separate the funds into separate accounts. For example, a company can name the petty cash account by its location for accurate tracking of this asset.