This presentation explains what petty cash is, provides some suggested practices, describes how to set up the account, and provides step-by-step instructions for getting started.

1. Petty Cash Management
Introduction

2. Definition
 Petty cash is a small amount of discretionary funds in the form of cash
used for expenditures where it is not sensible to make any disbursement
by check or transfer, because of the inconvenience and costs of the effort
to make the check or transfer (http://en.wikipedia.org/wiki/Petty_cash)

3. Suggested Practices
 Create Guidelines: create simple guidelines about what petty cash should
be used for (i.e., what types and amounts of expenses) and train staff
about the guidelines.
 Appoint a Custodian: appoint a Petty Cash Custodian who is responsible
for managing the petty cash. Train that person well about the concept
and guidelines of petty cash and ask them for ongoing ideas and
suggestions as they learn on the job in order to continuously improve the
process.

4. Suggested Practices (Continued)
 Require Documentation: require that receipts be provided by employees
after they make their purchase. If a receipt is unavailable then use a pre-
printed Petty Cash Voucher.
 Secure the Cash: keep the cash in a locked cashbox in a locked desk
drawer for safety.
 Reconcile Monthly: reconcile the petty cash every month; be sure to add
corresponding entries in the accounting ledger/system.

5. The Petty Cash Process
Setup, Daily Transactions, and
Reconciliations

6. Step 1: Establish Business Rules & Guidelines
 The business rules and guidelines should be simple, clear, and based on
the needs of the organization. Here are some suggestions:
◦ Establish a Beginning Amount: don’t put too much cash into the
account because it won’t be in a totally safe place and the amounts that
are taken from it should be relatively small; you don’t want employees
to think that they can use the account for things that should be paid as
part of the normal accounts payable process (i.e., approved by a
manager or the business owner and handled by the proper accounting
staff). Maybe start with USD 300 (THB 10,000) and adjust for your
business needs and adjust over time as necessary.

7. Step 1: (Continued)
◦ Establish a Maximum Transaction Amount: establish a maximum
amount that can be paid from the account. USD 20 (THB 500) should
be enough for the typical petty cash transaction. If more is needed
then instruct the staff that a manager or the business owner must
approve the transaction.
◦ Require Receipts: receipts or a Petty Cash Voucher should be required.
These are used to reconcile the account and without them it will be
impossible to do. They are also used to satisfy government and
accounting regulations by proving the expense was actually incurred.

8. Step 2: Do the Initial Setup
 Establish the Petty Cash Custodian: recruit someone who is trusted and
respected by management and staff alike. The person should be
responsible and capable of explaining the rules to staff if necessary and to
refer them to management in cases where the amount requested is
beyond the established maximum transaction amount.
 Obtain Secure Containers: buy a cashbox and a lock for it. The Petty Cash
Custodian should have one key and a manager and the business owner
should each have one key. Keep the locked cashbox in a locked desk or
file cabinet drawer; get one if you don’t have one.
Although the cashbox is locked, if it is left out in the open it will be easy for
someone to walk off with it and break the box open with a tool. If it’s kept
in a locked drawer it won’t be obvious to non-employees where it is and it
will be more secure (the desk/cabinet is big and heavy and it has a lock).

9. Step 2: (Continued)
 Create The Account: write a check, or get cash from an ATM, in the
amount that was established as the starting amount (the canceled check
or the ATM receipt will serve as the proving document so be sure to get
the ATM receipt if using that method) and put it in the cashbox. Get a
variety of note denominations and some coins as well to make it easy for
the custodian to give amounts that are close to what is needed.
 Prepare Staff: train staff members about what types and amounts of
transactions the petty cash fund is for, the requirement that a receipt or
Petty Cash Voucher is needed upon purchase, and who the custodian is.
Maintain consistency about the rules in order to simplify the process for
everyone.
 Get a System: obtain or create a tool that can be used to facilitate your
petty cash management system.

10. Step 3: Create a Transaction Log
 The transaction log contains the daily transactions for each period (i.e.,
month).
 In its simplest form, the transaction log is created each month in a tabular
format (i.e., rows and columns; on an Excel worksheet, for example)
where the rows are the daily transactions and the columns contain the
specific pieces of information about each transaction such as dates,
amounts, and descriptions.
 More advanced transaction logs contain more information that can help
facilitate easy month-end reconciliations and the creation of journal
entries.
 Transaction logs should enforce the business rules (i.e., guidelines and
practices) that you have set up for your organization.

11. Step 4: Record the Daily Transactions
 Transactions are contained in monthly transaction logs.
 Sections of Transactions: there are two sections of a petty cash
transaction: (1) cash out; (2) actual expense.
◦ Cash Out: cash out refers to the cash taken out of the cashbox.
◦ Expenses: the details of the expense that was incurred.
 Recording Transactions: record both sections of each transaction in order
to maintain consistency and keep track of the cash going out of and into
the cashbox.

12. Step 5: Perform the Monthly Reconciliation
 The very convenience of petty cash also presents its most significant audit
challenge; because the cash box is usually not well-secured, reliably
tracking access to the money presents an internal control risk. Ensuring
that the cash is used correctly requires a reconciliation of receipts, a
review of the cash storage location, and a review of the procedures
employees use to access the funds. An audit should be performed
regularly (http://smallbusiness.chron.com/audit-petty-cash-17444.html).
 Reconcile the petty cash on a monthly basis in order to maintain control
over the cash and to record the transactions in the accounting
ledger/system.
 Reconcile more frequently if you would like to maintain tighter control
over the cash in the cashbox.

13. Step 6: Replenish the Cash in the Cashbox

14. Petty Cash Management Guides
 Introductions
◦ Introduction to Petty Cash
◦ Introduction to the Petty Cash Management Module
 Deep Dives
◦ Module Navigation
◦ How to Record Transactions
◦ How to Manage Logs and Transactions
◦ How to Perform a Reconciliation
◦ The Guide to Viewing and Understanding Reports
 Library Home

15. Summary
 Petty cash is small in amount but big in complexity.
 There are six steps in a petty cash system:
1. Create the guidelines that will clarify how your organization will handle its
petty cash.
2. Do the initial setup that includes appointing a custodian, obtaining a cashbox,
and training staff.
3. Create a transaction log.
4. Record the daily transactions.
5. Perform the monthly reconciliation.
6. Replenish the cash in the cashbox.
 Repeat steps 3-6 every month, adjust your guidelines as your organization changes
and matures, and keep staff informed and trained.

16. Contact Information
David Olson
E-Mail: David.Olson@DavidRobertsOlson.com
Phone: +66 86 924-8482
Skype: DavidRobertsOlson
All original content copyright © 2013 by David Roberts Olson. All rights reserved.