Petty Cash Accounting

A small amount of cash that is kept reserved by a business to fulfill sudden but small every day operational needs is called petty cash. The small cash needs may include the purchase of office supplies, printing of office cards, every day fresh flowers for office, mineral water supply and many minor expenses like these. Petty cash is stored in a location where it is easy accessible when required. A large business may have a number of small petty cash reserves in the form of drawers or cash boxes. Petty cash is not recorded on the financial statements of a business as a completely separate accounting system is used to account petty cash and petty cash expenses.

In order to create a petty cash account a company establishes a petty cash fund account that can be shown as under

Petty Cash          Debit     Credit

Cash                      $300

$300

There is a custodian of petty cash account that is responsible for replenishing the accounts after the funds are used up to a certain limit. For example the replenishment limit for the above mentioned example is $ 20. The custodian will replenish the account with $280 when it reaches the amount of $20.

Petty Cash          Debit     Credit

Cash                      $280

$280

The cashier will record the petty cash expenses in the account named as office expenses and the entries made by the cashier can be shown as under

Debit     Credit

Office Expense $280

Petty Cash                          $280

Other Related Accounting Articles:

• Debit and Credit Explained
• The Concept of Double Entry Accounting System
• Credit Utilization Rate
• Accumulated Fund
• Accounting for Non-Trading Concerns
• Difference between Bookkeeping and Accounting
• Managing Cash Flows in a Better way
• Correct Capitalization Limit
• Unrestricted Cash
• Journal Accounting