Petty Cash Definition

What Is Petty Money?

A petty money fund is a small quantity of firm money, usually saved readily available (e.g., in a locked drawer or field), to pay for minor or incidental bills, equivalent to workplace provides or worker reimbursements.

A petty money fund will bear periodic reconciliations, with transactions additionally recorded on the monetary statements. In bigger firms, every division may need its personal petty money fund.

Understanding Petty Money

Petty money supplies comfort for small transactions for which issuing a test or a company bank card is unreasonable or unacceptable. The small amount of money that an organization considers petty will fluctuate, with many firms conserving between $100 and $500 as a petty money fund. Examples of transactions {that a} petty money fund is used for embody:

• Workplace provides
• Playing cards for purchasers
• Flowers
• Paying for a catered lunch for a small group of staff
• Reimbursing an worker for small work-related bills

Petty money fund custodians are appointed to supervise the fund. The custodial duties usually embody implementing petty money guidelines and rules, requesting replenishments, and allotting funds.

Necessities for Petty Money 

Using a petty money fund can circumvent sure inside controls. Nevertheless, the provision of petty money does not imply that it may be accessed for any function by any individual. Many firms make use of strict inside controls to handle the fund. Typically, a number of people are licensed to approve disbursements and may solely accomplish that for bills associated to legit firm actions or operations.

A petty cashier is perhaps assigned to subject the test to fund the petty money drawer and make the suitable accounting entries. The petty money custodian is charged with distributing the money and amassing receipts for all purchases or any makes use of of the funds. Because the petty money whole declines, the receipts ought to improve and add as much as the overall quantity withdrawn.

By having a petty money cashier and a petty money custodian, the dual-process helps to maintain the funds safe and be sure that solely these licensed have entry to it.

Recording Petty Money

When a petty money fund is in use, petty money transactions are nonetheless recorded on monetary statements. No accounting journal entries are made when purchases are made utilizing petty money, it’s solely when the custodian wants additional cash—and in alternate for the receipts, receives new funds—that the journal entries are recorded. The journal entry for giving the custodian additional cash is a debit to the petty money fund and a credit score to money.

If there is a scarcity or overage, a journal line entry is recorded to an over/brief account. If the petty money fund is over, a credit score is entered to characterize a achieve. If the petty money fund is brief, a debit is entered to characterize a loss. The over or brief account is used to force-balance the fund upon reconciliation.

Reconciling Petty Money

The petty money fund is reconciled periodically to confirm that the stability of the fund is right. Sometimes, because the petty money stability falls to a preset stage, the custodian applies for extra money from the cashier. Presently, the overall of the entire receipts is calculated to make sure that it matches the disbursed funds from the petty money drawer. If new funds are wanted, the cashier writes a brand new test to fund the petty money drawer and takes, in alternate, the receipts from the purchases that depleted the money.

The reconciliation course of ensures that the fund’s remaining stability equals the distinction between the unique stability minus expenses detailed on receipts and invoices. If the remaining stability is lower than what it needs to be, there’s a scarcity. If the remaining stability is greater than what it needs to be, there’s an overage. Though there will be minor variances, when unbalanced, the supply of the discrepancy needs to be recognized and corrected.

Petty Money vs. Money on Hand

“Petty money” and “money readily available” sound so much alike, and so they do overlap. Of the 2, “money readily available” is the extra generic time period.

Petty money refers particularly to cash—actually, cash and payments—that an organization retains readily available for small outlays, often as a result of utilizing money is less complicated than utilizing a test or bank card.

Money readily available is any accessible money the enterprise or liquid funds have. It may be within the type of precise cash, like quantities you have not but deposited within the financial institution or smaller payments and cash that you simply maintain within the money register to make change for purchasers. On this that means, the distinction from petty money refers to the place you are conserving the cash, and the way you are utilizing it—with petty money being extra for inside enterprise wants/bills by staff, and money in hand referring to funds obtained from or being reimbursed to clients.

However money readily available has a bigger that means, as an accounting time period. Within the monetary world, it additionally refers to an organization’s extremely liquid property—funds in checking or different financial institution accounts, cash market funds, short-term debt devices, or different money equivalents. Although not actually money, it is cash that may be simply and rapidly accessed, which is why it is “readily available.”

In brief: All petty money is a type of money readily available, however not money readily available is petty money.

Benefits and Disadvantages of Petty Money

Petty money has its pluses. Money, in lots of circumstances, stays the quickest, easiest, best technique to pay for issues. It really works properly to cowl small impromptu bills—like a tip for the child delivering pizzas to the lunch assembly, or cab fare house for workers working late. It saves the trouble of reimbursing individuals or anticipating them to pay out-of-pocket for work-related objects.

Petty money may also work for frequent however mundane bills, like milk for the workplace fridge, stamps, or cleansing provides.

Whereas it should not be a recurring observe, petty money in a pinch can be utilized to make change for purchasers, if the until’s working brief.

On the draw back, the comfort of petty money may also make it an issue, and a threat. Money is tough to safe and not possible to trace; it’s totally straightforward for payments to vanish and not using a hint—even in the event you’ve established a cautious system of receipts or vouchers.

This brings us to a different downside of petty money funds: Sustaining them, conserving data, and reconciling them recurrently, all contain additional work for somebody. This can be a minor nuisance in giant corporations with an workplace supervisor or accounting division; for small companies, it would create a burden.

Business transactions are more and more cashless—even at small retailers and eating places, the place purchases historically have relied closely on cash. Petty money has turn out to be an outmoded idea, some critics say. In between bank cards, debit playing cards, cost providers like Venmo or Paypal, digital wallets, and different contactless methods to purchase issues, loads of alternate options exist easy as money—with the added benefits of being traceable, safe, and fewer topic to theft.

The safety facet is commonly vital to small firms, who’ve lengthy feared that conserving money round is an invite to crime.

Petty Money FAQs

What Is Petty Money and What Is It Used For?

Petty money is the cash {that a} enterprise or firm retains readily available to make small funds, purchases, and reimbursements. Both routine or surprising, these are transactions for which writing a test or utilizing a bank card is impractical or inconvenient.

Why Is It Known as Petty Money?

The English phrase “petty” derives from the French petit, which suggests “small” or “little.” Likewise, “petty” means minor or insignificant. So petty money refers to a small sum of cash put aside for trifling or little purchases, versus main bills or payments.

One of many earliest makes use of of the phrase comes from an academic work on housekeeping by Benjamin Billingsley, Recommendation to the ladies and maidens of London, that dates to 1678.

What Is an Instance of Petty Money?

Petty money is often saved in a drawer, lockbox, or giant envelope. Typical petty money purchases embody:

• Espresso, sweet, or snacks
• Flowers, birthday playing cards, or different small presents
• Cab fare or automotive fare
• Small workplace provides—pens, erasers, staplers, and so forth.
• Catered meals

Is Petty Money a Money Equal?

No. Petty money is precise money cash: payments and cash. Money equivalents are extremely liquid securities and different property that may be simply transformed into money: cash market funds, industrial paper, or short-term debt, like Treasury payments.

Nevertheless, on company monetary statements, petty money is listed within the “Money and money equivalents” part of the stability sheet. So the 2 will be lumped collectively in that sense.

How Do You Stability Petty Money in Accounting?

Every time you faucet right into a petty money fund—that’s, take cash out—a slip or voucher needs to be stuffed out. This acts as a receipt, logging the quantity of the withdrawal, the date, the aim, and different particulars. More and more, these slips are digital ones, entered in a digital spreadsheet or ledger. However it may be useful to maintain paper slips too, together with receipts from the purchases or funds (if doable).

After a delegated interval—often, the identical time every month or week—it is time to reconcile or stability the petty fund account. First, be aware the present quantity within the fund. Then, subtract this quantity from the beginning stability. This sum is the overall withdrawn from the account throughout that point interval.

Subsequent, whole the quantity of all of the excellent slips (plus hooked up receipts). This determine needs to be the identical because the withdrawn sum you calculated from the account beginning and ending balances. And the amount of money you have got in your storage field or drawer needs to be the identical as the present stability of the account.

In the event that they don’t match, you’ll have to research why: was there a mathematical error? is a receipt lacking or incorrect?  

Balancing the petty money account often happens when the fund must be replenished. The petty money custodian brings all of the slips or vouchers to the enterprise’ bookkeeper, cashier, or accountant. The petty money receipts are logged into the corporate’s Basic Ledger as credit to the petty money account, and possibly debits to a number of completely different expense accounts. When the petty fund is replenished, often by drawing on a company-issued test, it is recorded as a debit to the petty money account and a credit score to the money account.

The Backside Line

Petty money is a small amount of money that’s saved on a enterprise or firm’s premises to pay for minor bills and desires—often, no quite a lot of hundred {dollars}. Whereas it is simple to know and easy to make use of, petty money is topic to abuse, straightforward to lose observe of, and susceptible to theft. Some really feel that in modern society, the petty money fund is outmoded: loads of alternate options exist for small purchases which might be safer and simply as handy.