Petty cash refers to a handy stash of money that organisations use to procure inexpensive items. All businesses, big and small, are required to deal with petty cash at some point during the day or week. Transactions involving petty cash are not subjected to the usual reimbursement procedures that organisations are required to use for more substantial purchases or payments.
Why should I have a petty cash system?
If you don’t have one already, you should know that your small business would probably benefit from putting a petty cash system in place. It allows you to be prepared for routine office expenses from food, to tips, to bills. It also allows you to keep track of all your tax-deductible purchases. Also called a petty cash fund, the employee in charge of managing this system is called a Petty Cash Custodian.
How much petty cash should I keep on hand?
Depending on how large your staff is—whether it’s three people or 15—you could set aside anywhere between 6000 to 30,000 rupees.
How do I set one up?
Setting up a petty cash system is pretty straightforward and can be accomplished in eight easy steps.
Step 1: Create a Petty Cash Account and write out a cheque for the appropriate amount. Cash the cheque and create your first petty cash fund.
Step 2: Start maintaining a general ledger in which to keep track of the petty cash and petty-cash-related expenses.
Step 3: Buy blank cash vouchers from the stationary store and keep them in the same set of drawers/ location. They can come in useful should anyone in the organisation need to withdraw cash for any reason.
Step 4: Determine a spot for your petty cash fund. Designate a draw, box or safe in which to store the money. Ensure that it can be locked, if possible digitally, so that only a few people have access to it.
Step 5: Appoint a petty cash custodian, someone who is responsible for dispensing and keep track of the money, as well as replenishing it when necessary. Train this individual to perform their assigned tasks.
Step 6: Set expense limits or ceilings. One way of ensuring that large chunks of money from the fund don’t get spent on only one or two purchases, impose expense limits.
Step 7: All expenses should be accompanied by receipts or vouchers, stored alongside the ledger. The cash custodian should make a note of each withdrawal from, and addition to, the fund in the debit and credit columns in the ledger.
Step 8: Have your accountant reconcile your petty cash account periodically. It may only be small amounts of money, but loosing track of these expenses can add up over a period of time.
The accountant should ensure that there are no inconsistencies and that the requisite documents—i.e. receipts and vouchers—are in place. Just follow these simple steps and you will have a fully functional petty cash management system in place.