Businesses accept payment from customers through cash. While debit and credit cards have taken over for a lot of business owners, there are still many companies that need to accept cash in order to survive. Companies often use cash when they need to pay for small purchases such as pubic transportation costs, postage, tips, gas, and office supplies. Keeping track of your petty cash is essential for controlling your books. Small business owners often keep a petty cash fund for these expenses since it’s easier than paying for these items with your personal funds.
Advantages of Petty Cash
While many businesses do not want to use a petty cash fund, there are still advantages to having one. As you keep cash separate, you have a clear distinction between your personal and business expenses. A petty cash fund also makes it easier to record the business’s minor cash expenses. You will be able to get receipts for your cash transactions; this makes it easier for you when taxes are due since you’ll have documentation of all audited purchases in cash. With petty cash, you set a specific budget for the money, allowing you to know exactly how much cash has been spent and on what. This makes it much easier than credit card transactions where employees are given the card to pay for purchases. Credit card statements do not break down the purchases, and some employees forget to keep the receipts.
Creating a Petty Cash Fund
Depending on the type of small business you run, creating a petty cash fund is a simple process. If you own a home-based company, you will be in charge of all expenditures. The cash fund is assigned only to you, and you will need to keep accurate records of costs and items purchased. For a business, you need to list the names of all employees that will use the petty cash fund. Set up a monthly budget for the fund, and make sure you have guidelines in place as to how the money should be used. Employees need to obtain receipts and turn them in when they return with the change. To start the fund, you will need to pull money out of your company checking or savings account. Keep the money in a small cash box with a lock, or a safe place where you can easily access it. Use a general ledger to record the various transactions.
Replenishing the Petty Cash Fund
If your business does a lot of cash transactions, you need to maintain accurate records. The petty cash fund will remain a fixed fund for the company when it is needed. You should try to keep the same amount of money in the account each month. If you notice the fund is getting low, add money to the petty cash fund and write down the amount on the general ledger.
Risks of Petty Cash
While a petty cash fund can be beneficial for transactions, you do run the risk of having the money stolen by employees or thieves. This is why it is so important to keep the money locked up in a safe place where people are unable to access it without a key or your knowledge. Do not keep large amounts of money in the petty cash fund. You don’t want to have the money stolen and then have a large cash loss on your business receipts.
[box_light]Hank Bertrand is a freelance writer & blogger based in Houston, Texas. Hank writes on business, accounting, finance, banking, taxation and other relevant topics; those interested in becoming involved with the world of finance should check out the financial accounting jobs with moneyjobs.com.[/box_light]