Petty Cash Fund: The Complete Guide

In this case, the initial balance was $1,000, if we subtract all the expenses Mrs. Gordon made ($390) the remaining balance would be $610. That means Mrs. Gordon should ask her office manager or employee in charge of cash in the bank, to replenish $390 to the petty cash funds. One of the conveniences of the petty cash fund is that payments from the fund require no journal entries at the time of payment. Thus, using a petty cash fund avoids the need for making many entries for small amounts. Only when the fund is reimbursed, or when the end of the accounting period arrives, does the firm make an entry in the journal. The original amount in the petty cash fund remains constant. As cash is disbursed from the fund, it must be periodically replenished to ensure sufficient cash remains in the fund to meet minor business expenses.

It should, however, be avoided from an accounting perspective. Often, limited individuals are authorized to approve disbursements and can only do so for expenses related to legitimate company activities What does it mean to replenish the petty cash fund? or operations. The use of a petty cash fund circumvents certain internal controls. The availability of petty cash does not mean that it can be accessed for any purpose and by anyone.

What does it mean to replenish the petty cash fund?

A petty cash custodian should be designated to safeguard and make payments from this fund. At the time the fund is established, the following journal entry is needed. This journal entry, in essence, subdivides the petty cash portion of available funds into https://business-accounting.net/ a separate account. You typically evaluate your petty cash fund at the end of each month for more accurate balances. Remember to record petty cash expenses in your accounts as journal entries. But cash on hand has a larger meaning, as an accounting term.

• Advisory services provided by Carbon Collective Investment LLC (“Carbon Collective”), an SEC-registered investment adviser.
• University funds are not to be disbursed on goods or services for personal consumption or use.
• As expenditures occur, cash in the box will be depleted.
• Many bookkeepers prefer to combine the second and third journal entries above if the cash is replenished at the same time as expenses are recorded, which is generally the best practice.
• Like any other type of transaction, you must record petty cash transactions in your small business accounting books.
• Often, a few individuals are authorized to approve disbursements and can only do so for expenses related to legitimate company activities or operations.

In the financial world, it also refers to a company’s highly liquid assets—funds in checking or other bank accounts, money market funds, short-term debt instruments, or other cash equivalents. Though not literally cash, it’s money that can be easily and quickly accessed, which is why it’s “on hand.” According to our concept, replenishment is the action of refunding the expenses paid with petty cash funds.

Petty Cash:

Prepare a check, payable to the fund custodian to be picked up by, the fund custodian. Forward a copy of the police report to your business office for creation of a DPR to replenish the Fund charging the departmental guarantee account for the loss. Personal IOU’s are not permitted to the Fund, and Fund monies must not be commingled with personal cash or deposited for safekeeping in a personal checking account. Payments to vendors for invoices submitted directly to the department for non-PO purchases. These invoices should be processed for payment via a DPR (See APPM Section 1.3).