Every established business needs a way of tracking petty cash because it’s an important aspect of managing finances. Not doing so can lead to an incomplete financial picture, wasteful spending, theft, and overall faulty accounting. You can prevent such debacles with a petty cash control system that tracks and manages access to funds.
The Importance of Petty Cash
Petty cash will help your business more easily make small transactions daily or weekly. It’s something you can use instead of writing a cheque or using funds from your primary account. Petty cash can decrease bank transaction fees and allow accounting to more easily separate small day-to-day expenses from others, such as meals and entertainment. Petty cash offers a better financial picture of how money is being spent on those things.
Tracking Petty Cash
Petty cash expenses add up over time, so tracking is crucial. You’ll need a system in place, ideally, something that combines digital and physical tools. For example, a filmmaker can use petty cash software to keep track of receipts and expenses but require each crew member to sign a document acknowledging amounts received.
With that noted, you can track petty cash using physical tools alone. Here’s what you need to keep track of petty cash expenses.
1. Write a petty cash policy
Start by writing a petty cash policy. It should outline the acceptable and non-acceptable uses of the cash fund. Limit petty cash uses to business-related expenses only. For example, stamps for mailings, a new mouse to replace the old one, or restroom supplies are all business expenses.
Your policy may also include details about the following.
- Withdrawal amount limits
- Specific requirements for receipts,
- The names or titles of staff that are authorized to approve disbursements and withdrawals.
Ensure all employees are familiar with your petty cash policy.
2. Establish the amount of deposit
Establish how much money you’ll have for petty cash use at all times. Consider the amounts of your typical small expense to establish a suitable number.
3. Get a lockbox if necessary
A lockbox may not be necessary if you’re storing petty cash in a reusable prepaid card. However, in most cases, a lockbox is necessary, whether you’re using cash or a prepaid card. You can typically pick up a lockbox from the nearest office supply store. Get something that’s metal, so it’s hard to break open.
The lockbox will hold the petty cash you have available for small expenses, and you can also use it to store receipts. Ideally, find a secure lockbox (combination or key lock will do) that can fit into a drawer, so it isn’t immediately visible to everyone.
4. Create a transaction log
Create a log for tracking transactions or what is used from the fund. A simple handwritten accounting log or an online spreadsheet may suffice. You can also find pre-made transaction log templates online to save time. Your transaction log should include the following at a minimum.
- Date of transaction
- Why the transaction occurred, such as buying new pens
- The name of the staff and amount spent from the fund
- A spot to acknowledge and attach receipts
- A “cash-in” and “cash-out” section to keep amounts left updated
An excel spreadsheet is better than handwritten paper because the program can do the calculations for you, providing the required mathematics are set.
5. Set up a sign-out sheet
Set up a sign-out sheet that each staff member handling petty cash must complete and store the sheet in the lockbox. Use the sign-out sheet to document all disbursements from petty cash. It should include the following.
- Employee’s name
- The date
- Amount of cash withdrawn and purpose
6. Establish a reconciliation schedule
Set up a time to reconcile the petty cash fund. The frequency will depend on how often petty cash is required. For example, a weekly schedule is ideal for small businesses with frequent transactions. Similarly, you can reconcile petty cash monthly if your business rarely uses it.
The total amount after accounting for expenses should always equal the starting amount. For instance, if your petty cash fund is $500 and $250 was spent, receipts plus the unspent amount should total $500. If you find discrepancies, consider revisiting your petty cash policy or further limiting access to funds.
How to Keep Track of Petty Cash
Every established business needs a way of tracking petty cash because it’s an important aspect of managing finances. Not doing so can lead to an incomplete financial picture, wasteful spending, theft, and overall faulty accounting. You can prevent such debacles with a petty cash control system that tracks and manages access to funds.
The Importance of Petty Cash
Petty cash will help your business more easily make small transactions daily or weekly. It’s something you can use instead of writing a cheque or using funds from your primary account. Petty cash can decrease bank transaction fees and allow accounting to more easily separate small day-to-day expenses from others, such as meals and entertainment. Petty cash offers a better financial picture of how money is being spent on those things.
Tracking Petty Cash
Petty cash expenses add up over time, so tracking is crucial. You’ll need a system in place, ideally, something that combines digital and physical tools. For example, a filmmaker can use petty cash software to keep track of receipts and expenses but require each crew member to sign a document acknowledging amounts received.
With that noted, you can track petty cash using physical tools alone. Here’s what you need to keep track of petty cash expenses.
1. Write a petty cash policy
Start by writing a petty cash policy. It should outline the acceptable and non-acceptable uses of the cash fund. Limit petty cash uses to business-related expenses only. For example, stamps for mailings, a new mouse to replace the old one, or restroom supplies are all business expenses.
Your policy may also include details about the following.
- Withdrawal amount limits
- Specific requirements for receipts,
- The names or titles of staff that are authorized to approve disbursements and withdrawals.
Ensure all employees are familiar with your petty cash policy.
2. Establish the amount of deposit
Establish how much money you’ll have for petty cash use at all times. Consider the amounts of your typical small expense to establish a suitable number.
3. Get a lockbox if necessary
A lockbox may not be necessary if you’re storing petty cash in a reusable prepaid card. However, in most cases, a lockbox is necessary, whether you’re using cash or a prepaid card. You can typically pick up a lockbox from the nearest office supply store. Get something that’s metal, so it’s hard to break open.
The lockbox will hold the petty cash you have available for small expenses, and you can also use it to store receipts. Ideally, find a secure lockbox (combination or key lock will do) that can fit into a drawer, so it isn’t immediately visible to everyone.
4. Create a transaction log
Create a log for tracking transactions or what is used from the fund. A simple handwritten accounting log or an online spreadsheet may suffice. You can also find pre-made transaction log templates online to save time. Your transaction log should include the following at a minimum.
- Date of transaction
- Why the transaction occurred, such as buying new pens
- The name of the staff and amount spent from the fund
- A spot to acknowledge and attach receipts
- A “cash-in” and “cash-out” section to keep amounts left updated
An excel spreadsheet is better than handwritten paper because the program can do the calculations for you, providing the required mathematics are set.
5. Set up a sign-out sheet
Set up a sign-out sheet that each staff member handling petty cash must complete and store the sheet in the lockbox. Use the sign-out sheet to document all disbursements from petty cash. It should include the following.
- Employee’s name
- The date
- Amount of cash withdrawn and purpose
6. Establish a reconciliation schedule
Set up a time to reconcile the petty cash fund. The frequency will depend on how often petty cash is required. For example, a weekly schedule is ideal for small businesses with frequent transactions. Similarly, you can reconcile petty cash monthly if your business rarely uses it.
The total amount after accounting for expenses should always equal the starting amount. For instance, if your petty cash fund is $500 and $250 was spent, receipts plus the unspent amount should total $500. If you find discrepancies, consider revisiting your petty cash policy or further limiting access to funds.
