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Petty Cash and its working Principle
A petty cash fund is a small sum of corporate cash maintained on hand to cover minor or incidental expenses like office supplies or employee reimbursements. Petty cash funds will be reconciled on a regular basis, and transactions will be documented on the financial accounts. Each department in a larger firm may have its own petty cash fund. Petty cash is useful for small transactions where writing a cheque or a business credit card would be inconvenient or impossible.
The following are some examples of transactions that a petty cash fund is used for:
1.Supplies for the office
2.Customers’ greeting cards
3.Flowers
4.Purchasing a catered lunch for a small group of workers
5.Providing reimbursement to an employee for minor work-related expenses.
Requirements Of Petty Cash
Petty cash’s availability however does not imply that it can be used for any purpose by anyone. To administer this fund several corporations use strict internal controls. Only a few people are usually authorized to approve disbursements, and they can only do so for expenses that are directly related to the company’s lawful activities or operations.
A petty cashier may be designated to issue the check and make the necessary accounting entries in order to fund from the petty cash drawer. The petty cash custodian is responsible for disbursing cash and collecting receipts for all purchases and other uses of the funds. The receipts should increase while the petty cash total decreases, adding up to the total amount removed.
Cash on Hand vs. Petty Cash
The terms “petty cash” and “cash on hand” sound similar and overlap. “Cash on hand” is the more broad term of the two.
Petty cash is money—specifically, coins and bills—that a corporation keeps on hand for small purchases, usually because using cash is more convenient than using a cheque or credit card.
Cash on hand refers to any cash or liquid funds that a company has on hand. It could be in the shape of cash, such as money you haven’t yet placed in the bank or smaller bills and coins you keep in the cash register to give clients change. The distinction between petty cash and cash in hand pertains to where the money is kept and how it is used, with petty cash being used primarily for internal business needs/expenses by staff and cash in hand referring to payments received from or repaid to consumers.
However, as an accounting word, cash on hand has a broader connotation. It also refers to a company’s highly liquid assets, such as money in checking or other bank accounts, money market funds, short-term debt instruments, or other cash equivalents in the financial world. Though it isn’t actually cash, it is money that can be reached readily and quickly, which is why it’s called “on hand.”
To summarize, petty cash is a type of cash on hand, but cash on hand is not petty cash.
Benefits and Drawbacks of Petty Cash
1.Cash is still the quickest, simplest, and most convenient way to pay for products in many circumstances.
2. It’s ideal for covering tiny unforeseen expenses, such as a tip for the boy bringing pizzas to the lunch meeting or a cab ticket home for staff who have worked late.
3.It eliminates the trouble of reimbursing employees or requiring them to pay for work-related expenses out of pocket.
4.Petty cash can also be used for routine but necessary costs such as milk for the workplace refrigerator, stamps, or cleaning materials.
5.While it shouldn’t be done on a regular basis, petty cash can be utilized to make change for consumers if the cash register is running low.
6.On the other hand, petty cash’s convenience can make it a nuisance and a risk. Cash is difficult to safeguard and track, and it’s very simple for bills to vanish without a trace—even if you’ve set up a meticulous system of receipts or vouchers.
7.Another disadvantage of petty cash funds is that they require extra labor to maintain, keep records, and reconcile them on a regular basis. This may be a minor annoyance in large organizations with an office manager or accounting staff, but it could be a strain in small businesses.
8.Even at small businesses and restaurants, where purchases have traditionally depended primarily on money, commercial transactions are becoming increasingly cashless.
9. Some critics argue that petty cash has become obsolete. Between credit cards, debit cards, payment services like Venmo or Paypal, electronic wallets, and other contactless ways to buy items, there are lots of alternatives to cash that are traceable, safe, and less vulnerable to theft.
Conclusion
Petty cash is a small sum of money held on the premises of a business or firm to cover minor expenses and needs—usually less than a few hundred dollars. While it’s simple to grasp and use, petty cash is prone to theft, easy to misplace, and easy to lose track of. Some argue that the petty cash fund is obsolete in today’s society because there are many safer and more convenient options for modest purchases.
