Regardless of the type of business you operate, it is essential to maintain a small fund to deal with daily expenses. This saves you from the inconvenience of writing a cheque and spending extra hours at the time of the monthly accounts review. Business owners will most certainly find themselves in numerous unexpected situations where petty cash is required, like arranging dinner for the team doing overtime or requiring urgent office stationery.
Although petty cash covers minor daily expenses, improper petty cash management might lead to a potential risk of fraud, complexities in tracking expenses, and staff members spending from their pocket, which might demotivate them from working efficiently. Going forward, we will discuss how to set up and track a petty cash system effectively.
What is petty cash exactly?
Petty cash is a fund allocated to cover the day-to-day expenses of an organisation. A petty cash process/system is a set of practices that a company uses to allocate money for various needs, including office supplies and services.
How can you use petty cash?
In a business, petty cash is ideally utilised in circumstances in which it is not practical to use a cheque. Such funds are used for urgent repairs and purchasing business software that are pretty common everywhere. Apart from this, petty cash can be utilised to purchase office supplies, postage, cab fares, flowers, snacks & beverage arrangements for staff, to celebrate the birthdays or work anniversaries of staff members or to reimburse employees for minor work-related expenses.
How to set up a petty cash system?
The following is a simple procedure for setting up a petty cash system.
- Determine the instances or causes where the petty cash funds will be utilised. This may be in the form of a central petty cash fund for the entire company.
- Delegate a portion of your business’s revenue for petty cash and limit the amount to avoid the risk of theft or fraud.
- Appoint a keeper or custodian, preferably someone from the administrative staff who has adequate clerical and record-keeping skills, and is present in the workplace most of the time.
- Set up a petty cash box or drawer with a robust locking system and install an alarm to notify you if unauthorised access to the petty cash box is attempted.
- Purchase a set of vouchers from a shop that offers office stationery and supplies.
- Transfer the set amount into the petty cash and record the same in the general ledger as a cash flow to a specific petty cash account.
- Give specific instructions to the keeper or custodian on how to consider petty cash requests and cash allocation, how to fill out vouchers and when to request replenishment of petty cash boxes.
- Implement a regular monitoring procedure, cross-checking and matching of cash vouchers with expenses.
- Approve a procedure of refilling the petty cash box by the cashier when the custodian reports low cash levels and maintain all the petty cash-related records in the general ledger.
Track your petty cash effectively
Tracking petty cash effectively is crucial for the financial management of startups and small businesses. Failing to do the same would give an inaccurate picture of the company’s financial condition. From the perspective of the daily workings of your business, petty cash amounts may seem minor or inconsequential, but collectively it is a considerable amount, and its flow requires proper monitoring.
Overlooking nominal inaccuracies in the balance sheet will not affect your business today, but it could have a long term impact on your company’s financial health. Therefore, despite the size of funds allotted for petty cash, proper management and monitoring of petty cash is vital to eliminate potential risks.
There are three potential issues that might occur with your petty cash process.
- Lack of control and accounting of petty cash funds will result in wastage of funds on things that are not essential considering your business goals.
- Staff members might use petty cash funds for personal expenses if they presume it will go unnoticed.
- A slight delay in tracking your petty cash expenses might lead to serious accounting blunders.
So, here’s how you can track petty cash expenses
The issue with petty cash expenses is that tracking them is complex, and you might easily miss registering a payment. But, tracking these expenses is crucial for accurate accounting. There are several ways to track petty cash expenses.
Google forms work excellently as an expense tracker and give a clear picture of how funds are utilised. It saves your time and keeps your petty cash accounting accurate. You can create a Google Form that your employee will fill, and the data will be placed directly into an excel spreadsheet. Learn how to use Google Forms as an expense tracker
An Expense tracker is one of the most efficient ways for small and mid-size businesses to manage and track their petty cash expenses. This facility comes with accounting software, and you can find a specific tool for it as well. ‘Quickchex’ is one such tool that works efficiently for expense management. It comes with fully customisable expense policies and allows you to attach and store digital receipts. The real-time dashboard of the tool allows you to keep up-to-date with all expenses as they happen. Other expense management tools like ‘Rydoo’ come with mobile support and handy integration. ‘Expensify’ is another good alternative for managing expenses because of its automated features and smart reporting facility. Further, with income, expense, and mileage tracking, ‘Hurdlr’ is an excellent choice for expense management.
There are numerous accounting solutions available with different subscription packages. Such software are intended for big organisations and enterprises, including divisional and matrix organisations. However, these accounting tools come with a price, and to unlock all the software features, a subscriber needs to have a premium account that costs a substantial amount.
Which system will work best for you?
With different methods to track your expenses, it can be slightly hard to choose the right technique that suits the nature of your business and syncs with your business operations. Modern business setups look for a system or tool to automate their petty cash management. Determining which expense tracking system is suitable for your company or business needs a lot of consideration.
If you don’t want to spend money on subscribing to an online expenses management tool, you can opt for ‘Mint’. The tool is absolutely free of cost and it allows you to categorise the different expenses of your business.
‘Goodbudget’ is also an expense management tool suitable for those who have just started their business. The tool allows you to plan your office expenses using the ‘envelope method’ whereby you can allocate certain amounts – category-wise – such as office supplies, refreshments, reimbursement, etc.
A corporate office that prioritises accurate reporting and smart categorization, should opt for ‘Expensify’ as it delivers the ease of creating expense reports. Moreover, the tool has a simplified process for employee reimbursement and smart categorization.
Regardless of size, businesses that are looking for a reliable expense management tool should go with ‘QuickChex’. It automates the entire process and lets you experience the ease of tracking your office expenses as you can get audit and expense reports with just one click. Moreover, you can customise your expense policies and limits as per the headcount and nature of your business.
The bottom line
The petty cash process ensures that you don’t have to sign cheques for minor expenses, and the accounting department doesn’t need to bother if the coffee machine is running out of premix as there is a separate fund for such expenses. The process assures that employees will get reimbursed for the expenditures they have made for the company. At the same time, keeping a close eye on petty cash flow is vital to prevent waste and potential fraud. Manual work is always more likely to cause error and inaccuracy; therefore, establishing an efficient petty cash management process makes sense.
The substantial risk connected with funds in these accounts necessitates tight control of this process. Savage and Palmer is a full service accounting firm that can assist you with all your accounting needs including streamlining your petty management process! To drop in your details, click here.