Petty cash procedures are established by businesses or other organizations to handle small amounts of cash. Called a petty cash fund, this cash is used for making small purchases in lieu of writing a check or using a company credit card. A company will assign a custodian whose job it is to make sure that all monies are accounted for through a receipt or other appropriate documentation.
Usually less than $250 US Dollars, a petty cash fund allows for the use of cash for small purchases or reimbursements without the cumbersome process of writing a check. A petty cash fund can also substitute the need for issuing company credit cards to multiple people who make small purchases. This in turn reduces liability for the company.
If a petty cash fund is not already established, petty cash procedures must be established to ensure that all money is properly tracked and monitored. Sometimes regular, routine purchases are made that fall below a certain dollar amount and therefore make it inefficient to write a check for reimbursement. In that case, one should approach a manager or controller of a company to establish a petty cash fund.
If a petty cash fund already exists, it is essential to have the right petty cash procedures to track the money. This happens two ways: reimbursement or advance payment. Reimbursement occurs when a purchase has already been made and a person submits a receipt or other documentation in order to be paid back for money spent. An advance payment occurs when cash is disbursed for a purchase not yet made. In this case, a voucher or other documentation should be inserted into the petty cash fund at the time the disbursement is made. This voucher will show who disbursed the money as well as who received the money, along with the date, purpose, and other relevant information. The voucher remains in the petty cash fund until a receipt is returned to the custodian.
The custodian of the petty cash fund is usually established in the petty cash procedures. This is typically a certain position, like Office Manager, that is assigned to the duty. The custodian is then responsible for the entire petty cash fund. At any given time, the amount of money in the petty cash fund plus the vouchers must equal the total original amount of the fund.
Detailed petty cash procedures are essential to tracking money within the petty cash fund. This is because whenever there is cash, there is a potential for abuse. A petty cash fund should be monitored frequently by a supervisor to catch any discrepancies or potential problems.