petty cash replenishment entry

The company used this transaction to restore that account to its designated limit. ABC Co. used the following journal entries to record the transfer. During the accounting period, ABC Co. paid for various expenses from this account. Therefore, ABC Co. uses the following journal entry to record those transactions.

When disbursing cash from the fund, the petty cash custodian prepares a petty cash voucher, which should be signed by the person receiving the funds. A petty cash voucher is a document or form that shows the amount of and reason for petty cash a petty cash disbursement. Petty cash funds typically depend on how frequently your business makes small purchases. This is due to the petty cash expense is usually limited to only a certain amount that is deemed to be immaterial.

Demonstration of Typical Petty Cash Journal Entries

If the voucher amounts do not equal the cash needed to replenish the fund, the difference is recorded in an account named cash over and short. This account is debited when there is a cash shortage and credited when there is a cash overage. Cash over and short appears on the income statement as a miscellaneous expense if the account has a debit balance or as a miscellaneous revenue if the account has a credit balance. In the journal entry below, the vouchers total $130 but the fund needs $135, so the entry includes a $5 debit to the cash over and short account. As this petty cash fund is established, the account titled “Petty Cash” is created; this is an asset on the balance sheet of many small businesses.

petty cash replenishment entry

However, they require formal procedures, such as cheques, signs, authorization, etc. On top of that, they also come with additional charges that companies must pay to operate their bank accounts. Petty cash is system companies create to hold insignificant amounts of funds. It is crucial for companies as it helps them continue their operations smoothly. Throughout the month, several payments are made from the petty cash account of the Galaxy’s Best Yogurt. The imprest account forms part of the cash of the business and the fixed amount should be included under the heading of cash and cash equivalents in the balance sheet.

Replenish Petty Cash Fund Journal Entry

Offset the total with a credit to cash to write your next petty cash check. Keep petty cash on hand in your business to cover small unexpected expenses. These expenses can include paying postage, tipping delivery people, purchasing supplies, buying gifts and more. The accounts involved in journalizing petty cash are petty cash, cash and cash short & over. Record petty cash shortages and overages in the cash short & over account. It is important to realize that for simplicity and to maintain proper control over cash, it is best to only use the imprest petty cash fund to deal with cash expense payments.

  • This means that expenses above $50 cannot be charged to petty cash.
  • Petty cash replenishment occurs when funds are added to a petty cash box.
  • Usually one individual, called the petty cash custodian or cashier, is responsible for the control of the petty cash fund and documenting the disbursements made from the fund.
  • Any difference in the debits and credits is then recorded in the Cash Short and Over account on the income statement.
  • The recipient signs the voucher for the money and brings back a receipt and change.
  • The cash over and short is usually recorded under the other revenues or other expenses on the income statement as its amount is usually very small.

In our example above, we asked for $315 as replenishment because it’s the amount of total receipts. Hence, the sum of all receipts plus the ending balance should be equal to the petty cash of $500. Having a petty cash fund speeds up reimbursements and is an important best practice in cash management.

Do: require employees to account for expenses

The process of replenishing a company’s small purchase account involves a journal entry to accurately reflect the adjustments in the general ledger. Occasional errors may cause the petty cash fund to be out of balance. The sum of the cash and receipts will differ from the correct Petty Cash balance. This might be the result of simple mistakes, such as math errors in making change, or perhaps someone failed to provide a receipt for an appropriate expenditure. Whatever the cause, the available cash must be brought back to the appropriate level. On the DV, use payment reason “K” payble to the custodian of the petty cash account using vendor type Petty Cash Custodian.

This fund is convenient when the expense is small and it is not feasible to process a check or a credit card transaction. As a company grows, it may find a need to increase the base size of its petty cash fund. Otherwise, take note that the only entry to the Petty Cash account occurred when the fund was established.

However, petty cashiers cannot spend money from the account without receipts. For most companies, it involves receiving funds from various sources. Usually, companies transfer funds from a bank account to a petty cash account. In some cases, companies may also receive money from debtors directly into this account. When accounting for petty cash, companies must record two types of transactions.

The cashier creates a journal entry to record the petty cash receipts. This is a credit to the petty cash account, and probably debits to several different expense accounts, such as the office supplies account (depending upon what was purchased with the cash). The balance in the petty cash account should now be the same as the amount at which it started. Companies replenish the petty cash fund at the end of the accounting period, or sooner if it becomes low.