It should be noted that the debit to the income statement for the expenses, reduces the net income which reduces the retained earnings and therefore the equity in the business. You can report the petty cash by using the Report Petty Cash button on your account. In the next section, we’ll look at one of the most important cash controls, the bank reconciliation process, in detail. Double Entry Bookkeeping is here to provide you with free online information to help you learn and understand bookkeeping and introductory accounting.

It is important to realize that the $80 check will be credited to Cash (the company’s checking account). There is no entry to the Petty Cash account when merely replenishing the petty cash. Replenishing a petty cash fund is an important part of managing a company’s finances. It is necessary to ensure that the fund has sufficient funds to cover daily transactions and that it is properly accounted for in the company’s books. It is also important to monitor the vouchers used for debiting the general ledger accounts to ensure that the correct accounts are debited. This helps to ensure that the cash balance in the petty cash account is accurately reflected in the general ledger account.

In this guide, we’ll break down the basics of petty cash journal entries, how to record them accurately, and share some easy-to-follow examples to make it all simple. Petty cash refers to journal entry to replenish petty cash a system of holding insignificant sums of funds to pay for minor expenses. Companies use this system to keep money at hand to meet small needs as they arise.

  • As stated above, the most common source for these transactions involves the bank account.
  • To replenish the fund the expense vouchers need to be replaced by cash of 60, bringing the total cash in the fund back to its original 300 (240 + 60).
  • The custodian of the fund must log all expenses and present receipts as proof of the expense.
  • Replenishment of the fund is typically done in the same manner as the initial deposit, that is, with cash.

Step 2: Record Petty Cash Transactions in Journal Entries

Most companies specify the amount of money the petty cashier can allocate to a specific payment. If an item exceeds that amount, companies deal with the reimbursement through other means. On top of that, they may also specify the areas or accounts that the petty cash can cover. However, it may differ from “cash in hand” that companies keep for other purposes.

Journal entry for removing money from the petty cash fund

If the business decides to reduce the petty cash fund, cash is withdrawn from the petty cash account and returned to the general cash account. Company petty cash is a small amount of cash kept on hand by a business for the purpose of making small purchases. The cash is typically kept in a locked box or drawer, and only a designated employee, usually the office manager or bookkeeper, has the key. When disbursing cash from the fund, the petty cash custodian prepares a petty cash voucher, which should be signed by the person receiving the funds. A petty cash voucher is a document or form that shows the amount of and reason for a petty cash disbursement. Additionally, the petty cash fund should be regularly monitored to ensure that it is sufficient for the company’s needs.

Petty Cash Replenishment Journal Entry

As a company grows, it may find a need to increase the base size of its petty cash fund. Otherwise, take note that the only entry to the Petty Cash account occurred when the fund was established. In accounting, petty cash refers to a small amount of money that is used for minor expenses. For example, if the company has a policy of only paying for lunch with petty cash, then each employee would be allotted $5 to spend on their own lunches.

How to Journalize Petty Cash Replenishment

This can lead to problems down the road, especially if an audit is conducted. The journal entry for petty cash is a record of the money and change that has been deposited in the petty cash account. Using prepaid company credit cards instead of petty cash is a much safer and more automated procedure. To ensure efficient management of resources, the replenishment of money allocated for small purchases must be regularly monitored. Replenishing petty cash is the act of returning a significant amount of cash in the petty cash box to the amount listed in the general ledger account.

The petty cash account is a current asset and will have a normal debit balance (debit to increase and credit to decrease). Here is a video of the petty cash process and then we will review the steps in detail. For petty cash accounting, you must create a log detailing your transactions. And, you must record a petty cash journal entry when you put money into the petty cash fund and when money leaves the fund.

The journal entry should include the date of the transfer, the amount transferred, and any other relevant details. Managing a petty cash fund efficiently requires accurate petty cash journal entries and regular replenishment. By following best practices and keeping meticulous records, businesses can maintain financial transparency and streamline their minor expense processes. Implementing these guidelines will help you handle petty cash with confidence, ensuring that your business operates smoothly without financial hiccups. Proper petty cash reimbursement journal entries play a crucial role in maintaining financial accuracy and operational efficiency.

He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

It is important to determine the amount for the fund, as well as the maximum amount for requests. Additionally, it is also important to decide what the funds can be used for. When you put money into the fund, you must create a journal entry debiting your Petty Cash account and crediting your Cash account. When the petty cash fund gets too low, you must refill it to its set amount. Then, create another journal entry debiting the Petty Cash account and crediting the Cash account.

  • It’s not really an adjusting journal entry because there is an actual transaction being recorded.
  • (Sometimes we refer to this fund as an imprest fund since it is replenished when it becomes low.).
  • Usually one individual, called the petty cash custodian or cashier, is responsible for the control of the petty cash fund and documenting the disbursements made from the fund.
  • When the fund is replenished, the credit to Cash is for the difference between the established amount and the actual cash in the fund.
  • A proper petty cash reimbursement journal entry ensures that business expenses are accurately tracked and the petty cash fund remains functional.
  • Sometimes, there is a cash overage after we reconcile the fund remaining in the petty cash box to the petty cash receipts that represent all the expenses using the petty cash fund.

The check is cashed and the proceeds are placed in the petty cash box. At the same time, receipts are removed from the petty cash box and formally recorded as expenses. A petty cash custodian should be designated to safeguard and make payments from this fund.

Only when the fund is reimbursed, or when the end of the accounting period arrives, does the firm make an entry in the journal. When your petty cash cashier puts money into the petty cash fund, they must create a journal entry in your books. The entry must show an increase in your Petty Cash account and a decrease in your Cash account. To show this, debit your Petty Cash account and credit your Cash account. On the other hand, they also put cash into this system through their bank account.

Recording Miscellaneous Expenses Paid Through Petty Cash

Next, let’s assume that there is only $20.00 in cash remaining and Mary realizes that $20 is not sufficient. She needs to obtain a company check for $80 in order to cash it and return the cash amount to $100 (the amount shown in the Petty Cash account). The petty cash vouchers provide the documentation for the $80 check request.