What Is Petty Cash And Why Is It Bad For Your Business?

In fact, it is an antiquated practice and often brings more risks than benefits, especially to businesses that mostly operate online. Tracking petty cash transactions is part of an efficient bookkeeping system. Especially when it comes to maintaining accurate journal entries, https://kelleysbookkeeping.com/ keeping personal purchases separate from business, and capturing every possible tax-deductible expense. The Galaxy’s Best Yogurt establishes a petty cash fund on July 1 by cashing a check for $75 from its checking account and placing cash in the petty cash box.

Sometimes, especially in very small companies, the stack of petty cash vouchers serves as a log and the transaction details are entered into the bookkeeping system directly from the vouchers themselves. When the petty cash fund is established, a current asset account titled Petty Cash is added to the chart of accounts in the accounting system. Monitoring the use of the petty cash money to ensure efficiency (e.g., sufficient levels of cash in the fund) and compliance (i.e., petty cash policy and internal controls). The process includes a set of rules, policies, form templates, procedures and controls that a company uses to manage its petty cash fund.

Tracking Your Petty Cash

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As you start out, keep track of how much is in the petty cash box or drawer at the beginning of each day. As you make each payment, you will need petty cash slips or a transaction list. What Is Petty Cash And Why Is It Bad For Your Business? For each transaction, record the date, the amount, and what it was for. Every purchase using petty cash must be documented in the same way as other business income and expenses.

Reliance on Custodians

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