Petty cash is an essential part of your bookkeeping process, especially if you don’t have a solid amount of money on hand at the moment.
If you’re growing your business, there will always be instances where you’ll have to pull off some purchases from your own pocket.
However, if you let this practice unaccounted for, you may end up seeing considerable errors in your accounting.
Why do modern businesses still need petty cash systems?
The digitized landscape is slowly changing how businesses run different aspects of their operations.
For example, purchasing alternatives such as digital wallets and prepaid debit cards are available for both customers and companies to use when engaging in business.
However, just because everyone’s going digital doesn’t mean there aren’t any benefits with using physical petty cash.
Petty cash transactions can come in pretty handy for cash-only purchases and last-minute buys. Listed below are some advantages you can get from maintaining a reliable petty cash system:
- Allows employees to purchase authorized expenditures without going through lengthy expense reports
- Reduces any instances of unaccounted reimbursements for company expenses
- Improves your bookkeeping systems through consolidated receipts
How do I set up a petty cash system?
Whether you’re doing your bookkeeping in-house or outsourcing it, it’s crucial to know how to set up a petty cash fund. It’s essential to do this, especially for transactions that don’t accept checks or credit transactions.
The best way to set up a petty cash fund is to create a separate bank account to track these expenses.
The petty cash amount should remain balanced, with regular replenishments quarterly or depending on how often you need to take money from it.
Or if you want to keep something off the books, while still technically keeping books, you can set up an offline tracking system.
You can then cut a check to replenish your petty cash fund to its starting balance after curating the total amount of purchases for that quarter.
Remember to collect both original and copies of receipts so that you can cross-reference these transactions.
You should keep this capital separate from your customer cash payments since it can cause discrepancies in your sales forecasts.
How should I track my petty cash system?
Where there’s money, there’s potential for abuse. Just like in the management of your customer payments, you should set up a tracking system to know who purchases what for your business.
Listed below are some ways to integrate your tracking system into your business’s operations.
- Include a petty cash tab as an asset on your chart of accounts
- Present guidelines of what company purchases qualify under petty cash reimbursements
- Create a cataloging system for the procurement and archiving of product receipts
- Set a finance officer or deputy to account for disbursement, recording, and allocating your petty cash
- Purchase a cash box for petty cash holdings separate from your physical customer payments
Every business sets up its petty cash system differently. However, these systems follow the same principle of archiving and replenishment.
Make sure that you follow these two principles when developing your business’s unique petty cash system.
Conclusion
Handling your business’s financials can be a major headache. Nevertheless, it’s part of the job to maintain a smooth sailing ship if you want to lead your company towards success.
We know that a small business’s needs are very different compared to larger enterprises.
This is why we custom-tailor our accounting and bookkeeping solutions to match your specific preferences.
If you need tax and accounting services in Indianapolis, contact us today!
