How to Set Up a System for Managing Your Small Cash Expenses

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It is not difficult to establish a system for managing petty cash, and doing so is preferable to the common practice of merely letting employees "borrow" money from the register whenever they require a few extra dollars. That very rarely results in a positive outcome.

Appoint a watchman for the small change.

It should be limited to one person at a time who is in charge of the fund's responsibilities. One company's petty cash management may be sufficient for a smaller company, but a separate fund may be required for each office or department in a larger company. Each fund requires a separate custodian. The disbursement of the fund, the documentation of such disbursements, and requests for replenishment will all fall under the custodian's purview at some point.

The bill must be paid.

To get the fund started, you should cash a check for an amount that appears to be appropriate given the size of the company and the anticipated volume of transactions. In the event that your general ledger's balance sheet does not already contain a Petty Cash account, you are required to create one.

The following is the entry that was made in the journal to document the funding:

Ensure that the money is safe.

Place the loose change in a container that can be locked or in a locking drawer of a filing cabinet. Only the person who has been chosen to act as custodian and either the chief financial officer (CFO) or the controller of the company should have access to the key.

Create guidelines

You will need to devise some guidelines for the use of the petty cash. How much is the most that can be paid out in petty cash? Which is a better investment, $25 or $50? When making larger withdrawals, does the custodian need to get permission first?

Make sure everyone on your team reads and understands these standards by going over them together. Clearly state that this is not something that should be used for personal purposes.

Payments that broke all previous records.

Keeping accurate records is an essential element of any system designed to manage petty cash. In the transaction log for petty cash, the custodian is responsible for recording requests for reimbursement from staff members. Paper vouchers are also used by some businesses; these must be filled out by the employee who is requesting the cash and must be kept with the cash.

Instead of using a paper ledger, a spreadsheet that contains the columns listed below can serve as the record of transactions for the petty cash:

Running Total Date Amount of Vendor Employees Description of the Vendor

The procedure for reconciling the books will make use of both this log as well as the receipts.

Make demands for receipts.

In spite of the relatively insignificant amounts, this helps improve internal control by providing evidence that the funds were utilised appropriately. Depending on the nature of your business and its operations, receipts may be provided in either printed or electronic form; however, it is imperative that you have a system in place to track and organise these receipts.

When it's absolutely necessary, increase funding.

When the amount of cash in the box gets low, you should cash another check to bring the cash balance back up to the float level. This should ideally be done close to the end of the month in order for the cash in the lockbox to equal the float at the end of the month. This is something that can be done because of the procedure for reconciling differences, which is something that is covered in greater detail in this article.

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