MAINTAINING A PETTY CASH FUND

In every well-run business, in order to maintain good cash control, there must be written evidence of every disbursement of money. For this reason, almost all payments are made from the company’s bank account by issuing cheques, or perhaps occasionally signing commercial drafts that automatically become receipts when they are endorsed and cashed.

It is often necessary to make a payment by cash because the amount involved is small or because a cheque is not acceptable. For example:

  • $1.50 parcel post C.O.D. charge
  • .50 shortage of postage on in-coming mail
  • $5 taxi charge for a rush order of supplies
  • $2 payment for office supplies

To meet these situations, a small amount of cash is kept on hand. Called the petty cash fund, it is given to one person, called the petty cashier. This person usually has no connection with the accounting system of the company.

To open the fund, a cheque is written for an amount that should be sufficient for several weeks’ expenditures, say $100. Cash this cheque, place the money in a cash box, and keep the box in a safe but convenient location.

When the petty cash fund runs low, the petty cashier presents the vouchers to the accountant. The vouchers prove that authorized payments were made. The accountant will then issue a cheque equal to the total of the vouchers. The petty cashier cashes the cheque and places the money in the petty cash box. The petty cash fund will now be back to its original amount. The fund is replenished when it runs low and at the end of the fiscal period before financial statements are prepared.

Petty cash money is only given to persons authorized to receive it, and a signed voucher is requested for receipt purposes. Payments made must be authorized by a properly supporting petty cash voucher. Petty cash vouchers are kept in the petty cash box with the remaining cash. The vouchers prove that legitimate, authorized payments were made because they have been signed by the party receiving the cash payment.

Suppose a petty cashier starts with $100 cash in the petty cash fund. At any time, the petty cash can be proven by adding the total of the cash in the box to the total of the vouchers in the box. Cash plus vouchers should always equal $100.

Exercises

1.Study the petty cash book below and answer the following questions:

a.On what date did the company establish its petty cash fund?

b.How much money was used to open the fund?

c.For what reasons was money paid from the fund on December4?

d.Why is every expenditure entered in two columns in this book?

e.How much money is left in the fund on December 11?

f.How does the secretary determine this amount?

g.How does the secretary prove this amount?

h.How does the secretary determine how much money is required for the replenishing cheque on December 11?

i.What will be the amount of the replenishing cheque?

2.A petty cash fund was established with $100. At present the petty cash box contains:

  • 6 vouchers for payments totalling $37.50
  • 2 twenty-dollar bills
  • 1 ten-dollar bill
  • 2 five-dollar bills
  • 1 loonie

Have any errors been made in the handling of the petty cash?

3.A petty cash box contains 16 payment vouchers which total $46.25. The fund was started with $50. How much cash should be in the box?

4.On September 7, Print-o-matic Ltd. decided to begin using a petty cash fund. A cheque for $50 was issued and cashed. The $50 cash was given to the receptionist who was to act as petty cashier. The receptionist/petty cashier was told to obtain authorized vouchers for all payments. No payments could exceed $20. The petty cash was to be replenished when the balance in the box reached $10. When this happened, a summary of vouchers was to be prepared and given to the accountant. Prepare the Petty Cash Summary with the following information.

  • delivery expense $15.75
  • office expense $6.33
  • advertising expense $19.00
  • postal expense $3.86

5.You are working for Cascade Enterprises. A petty cash fund of $100 has been established. The petty cash for the month of November is as follows. Write the Petty Cash Vouchers and a Petty Cash Summary for the month.

Nov. 1Fund has been replenished and balance is $100.00

2Priority Post package $17.96

4Vancouver Sun for October $12.50

6Cab fare $9.00

15Extra cleaning of office $25.00

23Manilla envelopes $12.50

26Ad in Student newspaper $5.00

6.On the petty cash book record the following transactions:

  • On October 1, 2---, the balance cash on hand was $200.
  • October 3, bought envelopes for the office, $2.25, voucher No. 1.
  • October 6, paid woman for cleaning the office $35.
  • October 7, bought a new stapling machine costing $17.40 to be charged to office Equipment account.
  • October 9, paid taxicab fare, $12.50.
  • October 12, paid CN $16.15 for shipping charges on incoming goods.
  • October 15, bought typewriter ribbons for the office, $24.75.
  • October 16, gave $20 to canvasser for the Christmas Fund which should be charged to Donations account.
  • October 19, paid $31.25 to the CP Express to pay charges on incoming shipment.
  • Rule the petty cash book, and bring down the balance cash on hand.
  • On October 19, the petty cashier obtained a replenishing cheque, No. 1072, for $40.70.

7.Continue the petty cash book from #6 above, with the following transactions:

  • On October 22, paid for lunches costing $12.75, voucher No. 9
  • October 23, bought carbon paper for the office, $13.05
  • October 25, bought a new ledger binder for the accountant, $17.18
  • October 27, paid the Ace Cartage Company $11.45 for delivering a parcel to a customer, the amount to be charged to Delivery Expense account.
  • October 28, paid Wilson Transport Company $13.25 shipping charges on incoming merchandise.
  • October 29, paid for a telegram $22.70.

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  • October 30, bought postage stamps costing $5, which is to be charged to Postage Expense account.
  • October 31, gave $10 cash to the proprietor, the amount to be charged to Wm. Calder, Drawings account.
  • Rule the petty cash book and bring down the balance cash on hand.
  • On October 31, the petty cashier obtained a replenishing cheque, No. 1198, for $94.62.
  • Finally, total the receipts column and rule a double line across the date column, the voucher-number column and the receipts column.

Additional Exercises

2.

PETTY CASH RECONCILIATION

Opening Balance as per records $100.00

Less: Vouchers (37.50)

Closing Balance $62.50

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Cash on hand2 x 20 $40.00

1 x 10 10.00

2 x 5 10.00

1 x 1 1.00

$61.00 (61.00)

Cash UNDER $1.50

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3.A petty cash box contains 16 payment vouchers which total $46.25. The fund was started with $50.

$3.75 cash should be in the box.

4.

Print-o-matic Ltd.

Petty Cash Summary

September 2000

Opening Balance $50.00

Less:#1 $15.75

#2 6.33

#3 19.00

#4 3.86

$44.94 (44.94)

Cash remaining$5.06

Cascade Enterprises

Petty Cash Summary

November 2002

Opening Balance $10.00

Less:#1 $17.96

#2 12.50

#3 9.00

#4 25.00

#5 12.50

#6 5.00

$81.96 (81.96)

Cash remaining$18.04

Petty Cash NotesPage - 1