Petty cash funds are funds that are kept on hand at your business office and is used to reimburse employees for small expenses. Sometime it is misused as if it were an extra bank account. Keeping track of petty cash is a key control for small business owners. Failure to do so will leave your business susceptible for risk and misappropriation of funds by dishonest and corrupted employees. If you have a petty cash fund you need to keep tight controls around how it gets handled and maintained.
Determine how much money you want to be available for petty cash reimbursements. Remember the types of expense will be small in nature, so you shouldn’t need any more than $500.
Create your petty cash SOPs (standard operating procedures). Define the types of expenses that can be reimbursed, such as stamps, gas or parking reimbursements and emergency bathroom supplies. The SOP should state:
- The requirements for an employee to receive a reimbursement – bring receipts
- How often the funds will be replenished – once or twice a month?
- How will you record payments that have been issued?
Decided where will you keep the funds and who will have responsibility over it. These funds should be kept in a locked box and in a locked drawer. Out of sight of passer-byers. And the person in control of these funds should be an employee you can trust but who also does not have access to financial records or the checks. Without these separation of duties, you put your business at risk for theft.
Reconcile the petty cash fund monthly just as you do the bank account. In order to properly account for your business expenses and ensure you cash balances are correct, you have to treat the petty cash fund as though it were a bank account.
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