1.1: Petty Cash Transactions

Responsibilities

Petty cash allows you to make small purchases or reimbursements, in cash, for items such as stamps, office supplies, parking, etc. The business should have a policy of how much money should be available in cash and a maximum expenditure that can be paid with petty cash. For example, you may establish a petty cash fund of R600, and have a policy that says that payments for items costing over R150 must be made by cheque rather than reimbursed through petty cash. The fund should be enough to cover petty cash expenditures for about a month. If it is too small you will have to constantly replenish the funds, and if it is too large it means you have cash on hand which could be more safely kept in your bank account.

The petty cash fund should be kept in a locked box or drawer. Auditors recommend that only one person, called the custodian, have access to this cash, and that person be responsible for all petty cash activity. To issue petty cash funds the business will need to buy or develop petty cash vouchers for documenting each transaction and determine who in the business can approve petty cash payments. In some cases, this will be the director; in others, managers or the petty cash custodian may also approve petty cash within guidelines established by the business.

♦ Cash purchases must comply with your business purchasing related policy and regulations.

♦ Petty cash cannot be used for personal loans, emergency loans, salaries, wages, or cashing cheques.

♦ Petty cash is not to be used for frequently purchased items. Such purchases should be otherwise done through purchase requisitions, direct order contracts, the business purchasing card or the expense claim reimbursement process.

♦ Only hand out petty cash upon submission of original vendor receipts.

Practical example – Petty Cash Fund

Once the manger has determined (with staff input) how large the petty cash should be, write a cheque to the petty cash custodian (not to cash) to establish the petty cash fund. For example, if you have a R1 000 petty cash fund and Mary Robinson is the petty cash custodian, write a cheque for R1 000, payable to Mary Robinson, Petty Cash Custodian. Mary then cashes the cheque and places the money in a locked box or drawer. To reimburse someone (in this example, Roberto Diaz) for a small purchase, Mary should obtain proof of purchase from Roberto, usually a receipt from the vendor, shop, post office, etc. Roberto must complete a petty cash voucher, detailing the nature and reason for the purchase. After the appropriate person has approved the voucher, Roberto is reimbursed for his expenditure.

In some cases, the business may permit an advance from petty cash to cover an upcoming purchase. For example, if the filing clerk is going to the post office to mail an overnight package, he or she may be authorised to take R100 from the petty cash fund with the stipulation that he or she return with a receipt and change. In this case, the clerk a voucher for a R100 advance, approved by a designated manager. When the clerk he or she completes an accurate voucher for the final postage amount, attach the receipt, and return the change to the custodian with the receipts, etc. Once the fund is substantially depleted, the petty cash custodian adds up the vouchers and assigns them into appropriate categories (e.g., postage, printing and copying, office supplies, etc.) The total of receipts plus cash available must equal R1 000 in order to prove that all money has been accounted for. When the account has been balanced, a cheque is written (in accordance with the cheque authorisation procedure established for all disbursements,) again payable to the petty cash custodian, for the exact amount of the vouchers/receipts, bringing the fund back to its original balance of R1 000.

Therefore, in the example described above, Mary totals the receipts in the petty cash box and determines that they fall into the following categories:

• Postage (4 receipts) R32.50
• Printing/Copying (1 receipt) R11.50
• Office supplies (2 receipts) R26.95
• Total receipts R70.95

In addition, Mary confirms that there is R 929.05 in cash remaining in the petty cash box. A cheque for exactly R70.95 is written, payable to Mary Robinson, Petty Cash Custodian, to bring the fund back up to R1 000. This method of maintaining a constant amount in petty cash through a combination of cash and receipts is called an imprest system. The petty cash vouchers should be stapled to the summary of expenses prepared by Mary and filed so they are not reimbursed a second time. When entering this transaction into the accounting system you increase postage, printing/copying and office supplies expenses, and decrease cash:

• Postage R32.50
• Printing/Copying R11.50
• Office supplies R26.95
• Cash – cheque R70.95

Notice that you do not post the expenses to an account called petty cash. This way, at the end of the year, you have a true picture of your expenses, which is more helpful for future planning than a lump sum in a petty cash line.