Working With A Petty Cash Box
A common bookkeeping task that many small businesses and nonprofit organizations need to master is petty cash record-keeping. Why? A petty cash system makes it easy (or easier) for the entity to quickly and easily pay for small purchases. Unfortunately, careful tracking can be difficult…unless you use a checkbook program like Quicken.
Using Quicken for Petty Cash
Quicken assumes that to track something like petty cash you will set up a cash account and then record transactions into the Quicken register every time you spend money and receive money.
This approach works fine, although it requires you to record transactions every time you spend or receive money. For this reason, you should know that there’s a handy variation to the obvious method. What you can do is set up a cash account (as described earlier), and then spend money out of the petty cash account as needed, placing receipts for the spending back into the petty cash box. Periodically, you reimburse the petty cash account by writing a check to petty cash on the regular bank account. To categorize this check, you use the spending receipts stored in the petty cash box.
An Example of Petty Cash in Action
Here’s an example of how this works. Suppose that you have a $100 petty cash fund and that from this fund you disburse two amounts: $50 to Sofia’s, a local restaurant, for an employee luncheon and $39.89 to United Parcel Service for a C.O.D. delivery of some business supplies. Quicken expects you to record these transactions separately.
But what you could do instead is to write a check on your regular banking account for $89.89 and categorize this check as $50 of Entertainment and $39.89 of Supplies.
When you reimburse petty cash by writing a check to petty cash, petty cash spending doesn’t appear in the petty cash account. It appears in the bank account you’re using to record the replenishment checks. The petty cash fund account balance doesn’t change and, then, is frequently in error. Anytime, in fact, that you’ve spent some of the petty cash money and haven’t yet reimbursed the petty cash fund, Quicken’s records overstate the petty cash fund account balance. But as a practical matter, this error is usually immaterial. Another way to think about this error is that it’s a tradeoff: You get to simplify your petty cash record-keeping, but for the simplicity you trade away a bit of accuracy.
About the author: CPA Stephen L. Nelson is the author of numerous best-selling books about small business accounting and the popular downloadable do-it-yourself guides Incorporating a Business in Ohio, Incorporating a Business in Pennsylvania, and Incorporating a Business in Missouri.
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