How Do You Record the Journal Entry for Petty Cash?
For other types of businesses, it usually occurs when the cash on hand, left after petty cash expenses, is less than the total amount in petty cash expenses receipts. A controller conducts a monthly review of a petty cash box that should contain a standard cash balance of $200. He finds that the box contains $45 of cash and $135 of receipts, which totals only $180.
Make Journal Entries
- This system will only allow the petty cash amount within the float amount.
- Right after this entry has been recorded, the check cashed, and the proceeds put in the box, there will be $100 in the box again, an amount which will match the general ledger account.
- A designated employee, the petty cash custodian, accounts for your business’s use of petty cash.
- The entry to record the reimbursement would debit the expense accounts reported by the custodian.
- While petty cash can reduce some administrative tasks, it also creates new ones.
- Some industries require detailed records of all cash transactions, which can be more challenging with a miscellaneous fund system.
However, companies limit how much they can pay through this contribution margin account. If payment is eligible under this account, companies can record the transaction. It will involve the affected expense account as a debit and the petty cash account as a credit. However, petty cashiers cannot spend money from the account without receipts. For most companies, it involves receiving funds from various sources.
Petty cash funds
You typically evaluate your petty cash fund at the end of each month for more accurate balances. Remember to record petty cash expenses in your accounts as journal entries. Petty cash, or petty cash fund, is a small amount of cash your business keeps on hand to pay for smaller business expenses.
- Cash Over and Short is an income statement account used to track differences in cash collections from what is expected and what is actual.
- A cash fund provides immediate access to funds for small, unexpected expenses.
- The journal entry for petty cash received from customers is as follows.
- Some businesses put $50 into their petty cash fund while others put $250—the amount of your fund depends on your business needs.
Do you already work with a financial advisor?
Petty cash refers to a system of holding insignificant sums of funds to pay for minor expenses. Companies use this system to keep money at hand to meet small needs as they arise. Therefore, companies use the petty cash system to handle funds. However, keeping significant amounts of money at hand can have some risks. Alternatively, if there had been too much cash in the petty cash box (a rare condition indeed!), the entry would be reversed, with a debit to cash and a credit to the cash over and short account.
In this case, we can make the journal entry for cash shortage by debiting the cash account and the cash over and short account and crediting the sales revenue account. When accounting for petty cash, petty cash journal entry cash over and short companies must record two types of transactions. Usually, these are the only items that impact the petty cash account. Let’s illustrate the Cash Short and Over account with the petty cash fund. Assume that the company has a petty cash fund of $100 and its general ledger account Petty Cash reports an imprest balance of $100.
Over and Short: Definition and What It Means in Accounting
At all times, the employee responsible for petty cash is accountable for having cash and petty cash vouchers equal to the total amount of the fund. Debit your cash short and over account in your journal entry by the amount of cash short. Alternatively, credit your cash short and over account by the amount of cash over. In the example, debit your cash short and over account by $10 to record the cash short amount.
Companies replenish the petty cash fund at the end of the accounting period, or sooner if it becomes low. The reason for replenishing the fund at the end of the accounting period is that no record of the fund expenditures is in the accounts until the check is written and a journal entry is made. (Sometimes we refer to this fund as an imprest fund since it is replenished when it becomes low.). To determine which accounts to debit, an employee summarizes the petty cash vouchers according to the reasons for expenditure.
This cash shortfall is recorded as a debit to the cash over and short account (which is an expense) and a credit to the petty cash or cash account (which is an asset reduction). For another example, on January 31, we need to reconcile the petty cash expenses and replenish the petty cash to its full established petty cash fund. In this journal entry, we credit the sales revenue because in the retail business the cash shortage usually happens due to us failing to keep the accurate records that are related to sales revenue. Also, the debit of cash over and short represents the loss, e.g. a few dollars, due to the cash being less than the amount it is supposed to be when comparing the sales records. Note that the entry to record replenishing the fund does not credit the Petty Cash account. In this case, the cash needed to get back to $100 ($100 fund – $7.40 petty cash on hand) of $92.60 equals the total of the petty cash vouchers.