Keeping track of petty cash is an important aspect of bookkeeping and small-business financial management. Those who fail to do so will end up with an inaccurate and incomplete set of data for their business’s financial situation. Failure to keep track of petty cash leads to wasteful spending, faulty accounting, theft by dishonest employees, and even a weak defense should the business ever be audited. Prevent all of the above by keeping professional controls over how much cash your small business uses including who does and does not have access to it.
1. Petty Cash Policy
Take a few minutes to write a policy for your petty cash. It doesn’t take long, and the policy should clearly state what is and is not an acceptable. Items commonly used for petty cash include:
• Stamps and postage
• A Starbucks or coffee run
• Cleaning supplies
• Toiletries for the washroom
• A doughnut or muffin run
• Lunch
The policy should clearly state petty cash is never to be used for employee personal expenses, even if they promise to pay it back. Petty cash policies often include a limit on amounts, whether for each of the acceptable uses for the cash or an overall maximum. The policy should also outline the requirement for receipts for items purchased, as well as a list of authorized employees who may approve and disburse withdrawals. All employees should have access to the policy, as well as be asked to sign it.
Bookkeeping Tip: Don’t have time to write one? Get a great template from At Your Business.
2. Set an Amount
One of the greatest setbacks to a petty cash plan is that it is often unknown how much should be available at any given time. By setting an amount, such as $500 to be reconciled at the end of each month, business owners will be able to know how much petty cash there should be at the beginning of the period and be able to use receipts to count up how much petty cash there should be in the fund to the cent at any given time.
3. Lock it Up
You may think of your employees as family, but there is something about cash within grabbing distance that can make some of them get sticky fingers. Purchasing a secure locking cash box for your petty cash and storing it in a safe location is essential. Be sure to limit the number of employees who have keys, the combination, or overall access to the lock box. This will give you peace of mind, ensure all transactions are recorded, and reduce the instance of theft along with the explanation that the would-be thief didn’t know the cash wasn’t up for grabs.
4. Keep Records of all Petty Cash Transactions
Set up a printed spreadsheet with sign out options and store it inside the cash box. The spreadsheet should record all petty cash disbursements with each employee who uses it, the date of purchase, the amount of cash withdrawn, and the reason for the withdrawal. You may also have an option for the employee who authorized or approved the withdrawal.
5. Audit the Petty Cash
Be your own IRS and run an audit of the petty cash system as time permits. This will ensure that petty cash is being used correctly and is being kept up with. This is essential even if you are the only one who is in charge of dispersing the petty cash.
6. Keep Records
Even after a petty cash transaction has been approved, withdrawn, and receipts turned it, it is essential to have records of each transaction, should the worst happen and the IRS asks for an audit. Keeping a hold of all documentation, including the spreadsheet and each receipt will be enough to satisfy them, while missing records are all they need to go after you.
Houston Bookkeeping
And if you are in need of expert Houston bookkeeping services regarding petty cash or another issue, please contact me.