Petty cash software to help your business safeguard
and control it’s petty cash
Directory
|
The Best Practice Guide to Managing Petty
Cash
What is petty cash?
Most businesses, have to pay for some
expenditure in cash. It is usually
more convenient to pay suppliers by using electronic cash transfer or by
check. However, for whatever reason,
sometimes this is just not practical and suppliers will need to be paid in
cash. The majority of businesses
generally restrict cash payments to small items of expenditure and minor
employee reimbursement. As a result,
a small amount of cash is usually kept in a secure cash box and is known as
the petty cash float. This guide explains, what you need to do, to ensure
your business’s petty cash spending is properly controlled, kept safe from
mis-appropriation by staff and third parties and is accurately recorded for
your accountants. How to manage petty cash
Internal Control 1 – Buy a proper
cash box with a lock and keys. The first thing you need is a secure cash
box. These can be purchased
relatively cheaply from most good office stationery suppliers.
Keys to the cash box should be given to a
couple of trusted members of staff.
These members of staff should be given the specific responsibility of
managing and controlling petty cash. Internal Control 2 – Keep the cash
box in a secure location. Cash boxes should be kept out of site if not
in use. Ideally, they should be kept
in a secure location such as a locked cupboard or draw. How to record petty cash
Internal Control 3 – Use petty cash
vouchers to record payments Next you need to buy a pad of petty cash
vouchers. These small pads can also
be purchased relatively cheaply from most good office stationery
suppliers. Put one or two pads in the
petty cash box, with a pen ready for the first payments.
Each time a payment is made from the petty
cash box, the following needs to be recorded on the petty cash voucher:- ·
Date of the payment. ·
Details of exactly what the payment was for. ·
The amount paid out. ·
The signature of the member of staff who was
given the cash. ·
The signature of a responsible member of staff
such as a manager to approve each payment. ·
A reference number (ideally you should give
the vouchers sequential reference numbers). To minimise the risk of fraud,
petty cash vouchers should not be completed in pencil. Internal Control 4 – All petty cash
payments should be approved The approval signature on each petty cash
voucher is a key control. Make sure
the staff responsible for the petty cash completely understand who has
authority to approve payments. Staff who are authorized to approve petty
cash payments need to be given clear guidance on exactly what they are
allowed and not allowed to authorize.
There should be an upper limit on what can be paid from petty
cash. Only genuine business related
expenses should be authorized. Source
documentation such as receipts or invoices need to be shown to the person
authorizing the expenditure. The principle of segregation of
duties – Often in small businesses the same staff
that administer the petty cash and have access to the cash box key, are allowed
to authorize payments. If your
business is large enough, try to avoid this and segregate the duties. Ideally, don’t allow the staff who control
the cash box to also authorize payments – this will make it harder for them
to commit fraud. And don’t let staff
authorize their own expenditure. Internal Control 5 – Keep all
receipts and invoices Once a payment has been made it is essential
to keep the supporting receipt or invoice.
The best thing to do is to staple them to the completed authorized
petty cash voucher. Keep completed
petty cash vouchers, together with the supporting receipt or invoice in the
petty cash box. Not only does this reduce the risk of fraud,
but tax authorities require businesses to keep these documents to prove that
expenditure incurred is for business purposes. Internal Control 6 – Use the
“Imprest System” The imprest system is a tried and tested way
of safe-guarding petty cash. The
basic idea is that you periodically top your cash box back up to a
pre-defined level of cash. The first thing you need to do is to decide
on an appropriate maximum level of cash that you will be comfortable keeping
in your cash box. You need to balance
the risk of keeping large cash balances on your premises, with the
administrative burden of having to constantly top-up a small balance. Usually, there will be a limit in the
insurance policy of the business as to the amount of cash that is insured to
be on the premises. The original pre-defined level of cash that
you decide upon is called the “original cash float”. Lets say, as an example it’s $500. The imprest system is very simple and
works like this:- Step 1:- Start by putting your “cash float” in
an empty cash box. Step
2:- Whenever someone makes a payment
from the cash box, a petty cash voucher is completed for exactly the same
amount as the payment and put into the cash box. Step 3:- Periodically, count the cash and also
count the value of the petty cash vouchers.
The total should always equal the original cash float. Take the vouchers out of the petty cash
box and draw down an additional amount of cash from the bank equal to the
total value of the vouchers. Use this
cash to top your cash box back up to the original “cash float” amount. Step 4:- Use the vouchers to write up your
petty cash records. Here’s an example:- Step 1:- Bill puts $500 in his cash box at the
start of January. Step 2:- Cash is drawn out from the box
throughout January. Each time cash is
taken out of the box, a completed voucher for the same amount is put back in
the box. Step 3:- At the end of January Bill counts the
cash. There is $400 left in cash and
the total value of the vouchers in the box is $100. Bill takes the vouchers out of the box, withdraws $100 from the
bank and tops his cash box balance back up to $500. Step
4:- Bill uses the vouchers to
write up his petty cash records. Internal Control 7 – Record your
petty cash transactions and reconcile the balance There are several ways of recording petty
cash transactions. Method 1:- An old fashioned manual cash book
If you only make the occasional payment, a
manual cash book may do the job just fine.
Ideally buy a book with about 14 columns. A manual cash book for the imprest example above may look
something like this:-
Method 2:- Use a spreadsheet
If like most businesses, you make a large
number of petty cash payments each month, a spreadsheet can be set up in a
similar format to a manual cash book.
This takes the hard work out of performing the arithmetic. However, petty cash spreadsheets are
notorious for becoming larger and larger, are an annoyance to maintain and
are easy to corrupt. They are also
very easy to manipulate if you want to defraud your employer. Method 3:- Use Petty Cash Controller
Petty Cash Controller is an application
written using Visual Basic for Applications in Microsoft Excel available at www.pettycashcontroller.com
. It is designed to offer a much
higher level of functionality, control and assurance than a spreadsheet. It is specifically designed to minimize
the risk of fraud and is generally easier and faster to use than a spreadsheet. It also ensures sales tax (GST or VAT) is
accurately recorded and can be reclaimed in full. Method 4:- Use your accounting software
It is worth looking into the petty cash
functionality of your accounting software.
Many packages have functionality specifically designed to record petty
cash. This method is generally better
than using a spreadsheet you’ve built yourself. The downside is that buying additional licences may be very
expensive, and very often non-accounting staff who look after petty cash may
find using the average accounting package a traumatic experience without good
training. Internal Control 8 – Periodically
check that petty cash is being used properly A manager periodically needs to perform a
spot check on the petty cash box and the records. Check for the following:- ·
Vouchers are signed with supporting
documentation attached; ·
The cash is regularly counted and the balance
agreed to the petty cash records; ·
If staff are paid expense claims from petty
cash, they should complete an authorized expense claim form in lieu of a
petty cash voucher; ·
Wages are not being paid from petty cash; ·
Staff are not borrowing from petty cash; ·
Any cash income received is kept separately
in an income cash box and not mixed with petty cash. Cash income should be counted, recorded
and reconciled on a daily basis with its own independent record. Double Entry for recording Petty Cash
Your accountant will use the system of double
entry to record your petty cash. If
you consider the manual cash book example given above under the heading
“Method 1”, the double entry for the month of January will be as follows:- To record the receipt of $500 from the bank
that was put into the cash box:- Debit Petty
Cash Account $500 Credit Bank Account $500 To record the total payments made during the
month:- Debit Motor
expenses $60 Debit Postage $10 Debit Cleaning $30 Credit Petty Cash Account $100 Click
here to return to Petty Cash Controller Home Page © Simple Accounts Programmes Limited 2007 |
