This is not a QuickBooks tip, but it is something I have seen time and time again when auditing records for my clients.
I call it the Petty Cash Disaster.
Have you seen this? You go to the client's site, you check their trial balance and their petty cash account says $1,021.37 for a balance. You look in the account and you find that they are using it like a bank account. They just write each entry they used cash for and debit the petty cash account. This account is not meant for this.
Usually, a company who wants to have a petty cash account writes a check out for a small amount of money, usually $100-$500.00, depending on the size of the company. You write the check out of your company checkbook and you apply it to the petty cash account on your chart of accounts. That amount will always be $500.00, if your original check was for that amount.
Now, you place that $500.00 into a petty cash box. When someone buys something for cash for the business, you take the money out of the cash box, and log it onto your petty cash sheet. Keep the receipt. As the money starts to diminish, you total what is left. Say you have $75.50 left in the box and you need to replenish, here are the steps you would do to replenish the monies:
1. Total and categorize your receipts, i.e., postage, office supplies, gas, etc.
2. Add them up. In case of the remaining amount above, your total should add up to $424.50.
3. Now write a check for cash in the amount of $424.50, but when you expense it, you do not expense petty cash, you expense it as postage: $$$, gas $$$, office supplies $$$ and this should all add up to the $424.50.
4. Now, when you return with the $424.50, you will again have a total in your cash box of $500.00. Your trial balance will still state the original amount of $500.00 in your petty cash account.
I call it the Petty Cash Disaster.
Have you seen this? You go to the client's site, you check their trial balance and their petty cash account says $1,021.37 for a balance. You look in the account and you find that they are using it like a bank account. They just write each entry they used cash for and debit the petty cash account. This account is not meant for this.
Usually, a company who wants to have a petty cash account writes a check out for a small amount of money, usually $100-$500.00, depending on the size of the company. You write the check out of your company checkbook and you apply it to the petty cash account on your chart of accounts. That amount will always be $500.00, if your original check was for that amount.
Now, you place that $500.00 into a petty cash box. When someone buys something for cash for the business, you take the money out of the cash box, and log it onto your petty cash sheet. Keep the receipt. As the money starts to diminish, you total what is left. Say you have $75.50 left in the box and you need to replenish, here are the steps you would do to replenish the monies:
1. Total and categorize your receipts, i.e., postage, office supplies, gas, etc.
2. Add them up. In case of the remaining amount above, your total should add up to $424.50.
3. Now write a check for cash in the amount of $424.50, but when you expense it, you do not expense petty cash, you expense it as postage: $$$, gas $$$, office supplies $$$ and this should all add up to the $424.50.
4. Now, when you return with the $424.50, you will again have a total in your cash box of $500.00. Your trial balance will still state the original amount of $500.00 in your petty cash account.
This is the proper way to account for your petty cash.
Check out my website www.artesanibookkeeping.com
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