Petty Cash Fund

Checks can be used for various purposes. For example, personal purpose, for business purpose or for operating the business activities etc. But generally in the normal activities of life or in day-to-day life, it is not practical or necessary for a business to write checks to pay small amounts of money, such as postage.

These small payments or amounts may frequently happened or occur in the business which add up to a significant total amount. And for this occurring these payments also require a process to control properly by the business which is called a petty cash fund a special cash fund. Petty Cash fund is made by estimating as weekly or monthly basis according to the necessity of payment. When the procedure fulfilled all the necessary approvals, then a check is written and cashed for this amount.

The amount of money which is collected by cashing the check is then given to an employee, referred as the petty cash custodian, who is authorized to pay out monies from the fund. Sometimes the company can place some boundaries on maximum amount of payments and the types of payments that can be transferred or made from the fund for control purposes. The custodian takes the records of details of the payment on a petty cash receipt form at each and every time when monies are paid from petty cash. At periodic intervals in the business or if the pity cash is depleted or the amount is reaches to a little amount, the petty cash fund is normally restocked. After restocked of a petty cash fund the debited accounts are recognized by summarizing the petty cash receipts. And then a check is written for this amount of money that is payable to the petty cash custodian.

How the entries of petty cash fund are recorded is described by using an example. Suppose that a petty cash fund of $300 is established on June 2. The entry for recording this transaction will be:

June 2

Petty Cash 300.00
Cash              300.00

Established petty cash fund:

At the end of month June, the petty cash receipts specify expenses for the following items: office supplies, $32; postage, $13; other supplies $43; and administrative expense $11. The entry to replenish the petty cash fund on June 30 is as follows:

Office Supplies                                                 $32
Other Supplies                                                  $43
Postage                                                             $13
Miscellaneous Administrative Expense         $11
Cash                                                                   $99

Replenished petty cash fund:

Replenishing the petty cash fund will restores it to its original amount of $300. When the fund is primarily established or when the amount of the petty cash fund is increased at a later time then petty cash is debited only. If the petty cash fund is being decreased then petty Cash fund is credited.