Petty cash is a part of organization’s cash in hand, specifically used for day to day small expenditures. This amount is used for all the expenses for which it is too hard to issue checks and records their trail.

These expenses have not material affect and generally did not required high level of authentication for its payment.

Most of the organizations has set a limit for petty cash account and petty cash expenses.

So that the operations will run smoothly without disturbing the daily routine.

Usage of Petty Cash:

Petty cash is used for small purchases of day to day business. Following are some examples of petty cash usage:

  • Payment for daily postage expenses
  • Payment for daily supplies
  • Payment for daily kitchen expense

Accounting for Petty Cash:

Rules of accounting for petty cash are just like the general rules applied on cash account. It will be treated as a current asset of the company and would apply all the debit and credit rules used for current assets. Let’s have a look on the example:

Example:

ABC ltd company has purchased some kitchen accessories from petty cash amounted $200. Pass the general entry:

Solution:

          Kitchen Accessories A/C                $200

                   Petty Cash A/C                                         $200

Like the assets when there is a transfer from cash in hand to petty cash account.

It will be debited with the amount received and when purchases are done by petty cash, then the petty cash account will be credited.

Presentation of Petty Cash Account in Balance Sheet:

Company’s financial statements are mainly of 4 types. Each statement has its own purpose and presentation form. The main common 4 types are:

  • Balance Sheet
  • Income Statement
  • Cash flow statement
  • Changes in Owner’s Equity
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The petty cash account will be shown in the balance sheet under the head of current assets. Or you can merge this account with the cash in hand account of the entity.

And thus present in the balance sheet. The hierarchy for petty cash will be like this in the balance sheet

Total Assets

  • Non-Current Assets
  • Current Assets
    • Cash And Cash Equivalents
      • Cash
        • Cash In Hand
        • Petty Cash

Let’s have a look of petty cash in balance sheet

The other financial statement where the amount of petty cash is used is the statement of cash flow. Because for the calculation of ending balance of cash, the petty cash amount should be combined with the cash in hand account.

Internal Controls for petty Cash:

There should be strong internal controls applies in the company. Because the availability of cash does not mean that everyone can approach it and use for any purpose.

There must be limited persons responsible for the usage of petty cash. The transactions should be well documented and receipts should be retained by the company for future consideration.

Conclusion:

The petty cash account is the sub account of main cash account. The main idea behind this sub account is to meet the daily expenses and by pass the lengthy procedure of making cheque.

This is treated as the normal current asset of the company and recorded under the head of current assets in the balance sheet.