Petty Cash

So you've got these bank accounts, and you want to add cash to the mix. if you're keeping a cash box somewhere, a "Petty Cash" asset account will let you reflect this on the books. Petty Cash is a very useful tool, but it can be challenging to get the process and paperwork right, consistently, leading to writeoffs of lost cash.

Pick an amount for petty cash, then get a cash box and assign it a custodian who will disburse cash from it. This could be you. Cut a check payable to the custodian, recording it as a transfer between checking and Petty Cash. The check gets cashed and the cash goes into the box.

Your Petty Cash account will now have that constant amount in it, and you're not going to enter any transactions in its register. Instead, the cash box custodian will disburse from the box and collect the receipts, then present the receipts and a voucher to you for reimbursement. You'll cut a check payable to the custodian and split it out to reflect the expenses on the individual receipts. The custodian will then cash the check and put the cash back into the box.

If you add up the total cash in the box, the value of receipts in the box, and the amount of reimbursement pending, the amount should *always* match the Petty Cash account.

Sounds simple? What I've found challenging is that the people in charge of the cash box don't do a good job at collecting and placing receipts in the cash box, so the box and your accounting system go out of balance. If this happens, eventually the custodian will tell you there's not enough cash in the box and will ask for more, and the check you write to refill it will also be a writeoff of lost cash.