Some South African businesses have weak controls over petty cash. Why? Because business owners assume that it’s a small amount of money, therefore no need to pay attention to controls over how it is spent. What they don’t know is that over time, if controls are inadequate, they can lose a significant amount of money.
What is Petty Cash
Just as the name suggests, petty cash is kept in the form of cash because this allows payments to be made immediately.
Petty cash is normally used for any small miscellaneous expenses. For example, office supplies; coffee or drinks bought for the office
delivery/postage fee when sending a letter or for reimbursing employees for work-related expenses.
Petty Cash and Bookkeeping
Money taken from the petty cash box or account must be clearly stated what it was used for, how much, and when. The petty cash account is usually evaluated at the end of each month, to check whether the amount of money left matches the amount of money taken out during the month.
Whenever the petty cash funds are used to pay for something, for instance, it is required to provide a receipt for that transaction. Receipts are used to verify the balance in the petty cash account.
What is Petty Cash Reconciliation
According to Debitoor, Petty cash reconciliation can be defined as the process of verifying transactions that involve petty cash funds.
Petty Cash reconciliation ensures that funds are being used appropriately, in addition it’s an important internal control for fraud prevention.
It’s important that your business reconciles its petty account frequently. Reconciling your accounts—from your business’s bank cash to its payable accounts allows you accurately track your financial situation.
The process begins with counting up the amount of cash on hand at the end of the month and using it as the ending balance for the petty cash account. Next, receipts are reviewed and verified as appropriate and complete.
Each receipt is logged as a withdrawal from the petty cash account. The ending balance should be equal to the beginning balance that was carried over from the previous period, plus any additional cash deposits — less the sum of all withdrawals.
When discrepancies occur, an investigation is conducted. This can involve examining who had access to funds, looking for missing receipts, and tracking down undocumented deposits. In cases where discrepancies are the result of fraud, additional internal controls are designed to prevent further occurrences.
What you should do
- Assign responsibility – Have one or two people who will be responsible for taking care of petty cash, from collating and filing of receipts to logging them in the system. Having someone accountable for the total expenditure makes it easier to keep track of such a tricky task. You could have several people who are in charge but remember the more people involved the more complicated the process could be so try and keep the number of people responsible at a minimum.
- Create guidelines – Make suitable. guidelines on how you’ll handle petty cash and make this a company policy so that all your employees are clear on what they need to do and how the process works afterwards. To ensure consistency whilst maintaining your books and petty cash account, make sure your dedicated staff are trained on how to maintain the account to eliminate the risk of confusion.
It is essential for companies to set up a good internal control system that keeps track of all cash inflows and outflows from the petty cash account. For instance, any employee who requires such cash should be required to write their name, the date, time, and the specific amount and description of the transaction. All these details are usually completed through a petty cash voucher/worksheet. These worksheets come in different forms but generally require similar information.
Just make sure that all petty cash transactions recorded accurately, as recording transactions can distort the reality of your company’s fiscal health. In severe cases, repeated accounting errors and bad accounting practices can lead your business towards insolvency or company administration.
When you run a small business it can be tempting to lower costs by handling your accounting yourself. While taking care of your accounting yourself might seem like a great way to save money, it could actually be costing your business money in the long run. A qualified accountant will have greater costs than managing your accounts by yourself, but will also save you money.
To find out how we can help you, talk to us today by emailing email@example.com