2.1: Cash-System Processes and Procedures

Petty cash transactions

Petty cash is a handy item to have for small purchases, but it needs to be accounted for correctly. Do a one-time entry in your books to set up the petty cash account. If you want R300 in the account, credit the bank account you are taking the cash from and debit your petty cash account. Then put that petty cash in a box. Every time you take some out to spend, keep track of what you’ve taken out with a receipt and at the end of the month you’ll have a list that looks like this:

Write a cheque to petty cash, which will be for the total of what you spent over the month, or R60.82. When you enter that check, credit cash and debit the three appropriate expense account numbers – supplies, small tools and postage. Cash the cheque, put the cash into the box, and start all over again. You can do this as many times over the month as you need to – every time you need to replenish the petty cash box, just write a cheque and make the balancing entries the same way. You never make the entries to Petty Cash itself after you initially set up the account, unless you want to make it larger or smaller at some point.

A petty cash fund allows you to make small payments without having to write cheques for small amounts. Each time you make a payment from this fund you should make out a petty cash slip and attach it to your receipt as proof of payment.

Administer petty cash/ payout system

a) Determine documentation necessary to obtain petty cash float or payout system, e.g. purchase order, ledger entry, cheque, petty cash voucher,

b) Secure petty cash float, e.g. in cash box or safe,

c) Identify criteria for:

• Paying out petty cash, for example:
  • who can authorise payments.
  • use of petty cash vouchers.
  • retaining receipt for goods purchased.

• Use of petty cash, for example:
  •  maximum amount allowed for single purchase.
  • type of goods to be purchased.

d) upon request for petty cash:

• fill out voucher, indicating:
  • purpose, name of recipient,
  • amount & date
• initial voucher and obtain recipient’s signature,
• give cash to recipient,
• file voucher and receipt for goods purchased.

e) balance cash at regular intervals:

• summarise and total purchases on petty cash report.
• count petty cash in float.
• determine amount of cash required to replenish float.

Monitor Cash Control Procedures

a) Review accounts payable procedures,

e.g. payroll, benefits program.

b) Review accounts receivable procedures:

• payment terms, e.g. prepaid, COD, 30/60/90-day terms.

c) Review credit policies, for example:

• develop application forms,
• determine authority to permit credit,
• set credit limits.

d) Review purchasing guidelines, for example:

• procedures for suppliers,
• products and quantities to be purchased,
• tax exempt and taxable products,
• preferred suppliers and alternates,
• discounts,
• volume incentives,
• when approval is required.

e) Review cash handling guidelines, for example:

• petty cash system,
• Amount of cash kept on premises and how it is secured,
• Authority for removal of cash and delivery to accounting department,
• policy for accepting: o cheques, e.g. personal, business, traveller‘s,

1. credit cards,
2. debit cards,
3. foreign currency,
4. government cheques,
5. house accounts & money orders.