Petty Cash is a bank-type account in QuickBooks, and you transfer (deposit) to this account each time cash is actually withdrawn from your bank to be kept in the office. This cash is generally kept on hand to cover small, on-the-fly transactions such as office meals, landscaping, fuel, etc.
A word of caution on using Petty Cash accounts: cash-only transactions can be difficult to trace, lead to bad internal controls, and be a target for audit/review. If at all possible, avoid using a Petty Cash account by using a company credit card or checking account to keep your books under control.
Some companies simply must have cash on hand for some expenses. Handling Petty Cash does not have to be a burdensome task if you maintain strict controls and procedures. Here are some tips for doing it right:
- Keep ALL receipts, noting who they are from and what they are for.
- Set a very conservative cash limit to keep on hand for the week, but make sure it is enough to fit your needs.
- Keep cash locked up and limit those with the code or key to 1 or 2 people.
- Maintain this account on at least a weekly basis.
- Do not refill your cash supply without first accounting for the cash that was spent.
In addition to being good practice, keeping your receipts is necessary if you plan to deduct these expenses on your taxes. You will also use your receipts to deduct cash out of your Petty Cash QuickBooks account, just as you would a debit card transaction from your bank account. Maintain your Petty Cash account at least weekly if it is not necessary more often. Remember, this account should be a “last resort” type of account when a company credit card or company check will not do.
Many Petty Cash accounts are NOT maintained and summary entries are made at year’s end to catch-up the account and balance against the actual cash on hand. The use of these types of summary entries are a sign of inaccurate record keeping and may be a warning sign of fraud as well.
Note: AccuraBooks is a bookkeeping firm only, so please consult with your Certified Public Accountant for verification and clarification about the contents of this article.