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If you are a small business, you are going to be dealing with cash. It could be in the form of customer payments or payments for office supplies. It is easy to mix petty cash with your personal finance, or to get it mixed with other funds. It can even get misplaced or stolen by employees.
Keeping track of your petty cash is just a good accounting practice, which will benefit your business. What may be just $10 every week is $40 every month, which means you have a petty cash amount of almost $500 that you need to account for.
Have A Petty Cash Policy
Sit down and draft a petty cash policy for your business. What should your petty cash policy include?
Appropriate Usage of Petty Cash
Lay down situations where accepting or giving petty cash payments are allowed. This will largely depend on your organization and the financial system you have set in place.
Designate a Petty Cash Custodian
Include the various responsibilities for the petty cash custodian. A custodian must handle the petty cash as opposed to multiple people doing so.
System of Accounting
Have a petty cash account to ensure that there is a hard paper trail for the allotted petty cash amount and its usage.
Petty cash should not be kept in the open. It should only be available to the petty cash custodian. Petty cash that is out in the open is available to employees with sticky fingers. In fact, the reason petty cash is hard to keep a track of is because it is openly available for employees to access.
Having a small safe box for cash is more than sufficient. You can also store it in a locked draw.
Allocate an Amount
Do you have a practice of frequently refilling your petty cash account? Don’t let your petty cash account become a money sinkhole. Put in a large amount according to your business requirements for a month. For a small business, between $500 and $1000 may be sufficient.
Do not refill it until the next month.
The best way to keep a lid on your petty cash is to have a record. It is vital that you have a system that is workable. Since it is petty cash, these are small payments that may be forgotten.
You have the options of using an excel sheet, phone apps or accounting applications. The records should include which employee made the payment, date of purchase, amount of money utilized and the reason for withdrawal.
For every transaction that you have with petty cash, ensure that you have a receipt to show for it. This way, you can ensure that the petty cash account tallies with the receipts and there isn’t any missing amount. Furthermore, add this to your account and claim food, transport, and other such tax relief for your business.
Petty cash should not be money that is thrown around. In the long run, it does impact the financial health of your business, hence it is vital to take care.