Tax Question:
How do I manage my petty cash?
Facts:
Petty cash is a float that gets replenished monthly and is a convenient way to reimburse staff for company purchases or to cover minor expenses. Petty cash is considered a current asset on the balance sheet.
Discussion:
Having a system to manage petty cash is crucial so that it reconciles each month. Some systems to put in place are:
- Appoint one person to be responsible for handling disbursements. Assign a second person to enter the receipts into the accounting system and issue replenishments. Separation of function when handling cash is good business practice to prevent an opportunity for fraud.
- A maximum limit should be set for items that can be reimbursed through petty cash. A $100 limit is reasonable but it should be based on your company’s needs. Generally, there should be enough funds to last for the month.
- Keep a record of all disbursements as this is very important for reconciliations. Attach receipts to this record to support disbursements.
- A reconciliation should be performed at the end of each month or sooner if the funds get low. Expenditures should be entered into your accounting system to keep an accurate record of expenses. Once reconciled, a replenishment cheque should be issued to “top up” the petty cash to its original amount.
Once the reconciliation is completed and entered into your accounting system, the amount reported on the general ledger should be equal to the replenished cash on hand.
Diane Sawyer
Tax Technician, Gilmour Group CPA’s
Email: faqs@gilmour.ca
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