The Step by Step Guide to Prepare Your Petty Cash Book
Do you require cash for unexpected expenses almost on a daily basis?
Whether it’s money for some office supplies, lunch for clients or employees, cab fares or money to pay the postman when he brings a letter or a COD package, businesses need to keep some cash in hand for such unexpected expenses. In business terminology, we call it petty cash.What is Petty cash?
Petty cash is a small amount of money kept aside for the day-to-day expenses in your business.Small businesses mainly setup a petty cash book for convenience, as sometimes you need a quick alternative to use in place of your company’s regular payment process.
So what are some examples of petty cash expenses in a business?
- Petty cash expenses include office supplies, catered lunches, postage, cab fares or even a simple cup of tea/coffee.
If these petty expenses aren’t documented in your books, a lot of money can go unclaimed. These little expenses can be of a significant amount in the long-run once they keep accumulating.For example
: If a cup of tea/coffee costs Rs.10 per cup, it will be Rs.10,000 if your business has 10 employees for just 100 days in a year.Other examples include:
- To pay for small purchases which require cash, such as food for your employees or coffee supplies or a parking ticket
- To reimburse employees for goods/items they have bought for your business.
: Add a petty cash book account to your books of accounts, if you do not already have one. Also, start a petty cash fund by drawing a cheque on your company to ’Petty Cash’ and cash the cheque.Note
: If you are a small business with fewer people you may only need Rs.5000 in your petty cash fund. But if you’re a larger SME, you may need a larger fund. So based on the size of your business and your judgment as a business owner keep the contingency.Step 2
: Place the petty cash from the cheque you cashed at a safe & designated location within your workplace (Example: a lockable drawer or a safe).Give access to the petty cash fund to only a few people and assign the responsibility for refilling & recording the transactions of the petty cash fund to a specific person out of them.Step 3
: Make a list of the expenses made out of the petty cash fund and keep the receipts of all the expenditures made attached to that list.Step 4
: Refill the petty cash fund back to the decided and approved amount, as needed.Format of Petty Cash Book for your business:
Petty Cash Book Format
|Amount Received||Date ||Particulars||Voucher No.||Ledger Folio||Expense (Amt. Paid)|
The following transactions occurred in the books of GUPTA JI LTD in the month of May 2019.May 2 - Cheque received for Rs.700 to open the petty cash bookMay 3 - Postage paid Rs.50May 6 - Paid taxi hire of traveling employee (xxx to location Y) Rs.100May 8 - Paid cleaning lady Rs.125May 13 - Telegram sent to Delhi Rs.40May 17 - Cart hire paid on goods bought for business Rs.60May 19 -
Stationary purchased Rs.120May 25 -
Customer's tiffin charges Rs.60May 31 - Settled the pending balance due to Smith Rs.85
|Amount Received||Date||Particulars||Voucher No.||Ledger Folio||Expense (Amt. Paid)|
|700||May 2||To Bank|
|May 3||By Postage||50|
|May 6||By Taxi Hire||100|
|May 8|| By Wages||125|
|May 13||By Telegram ||40|
|May 17||By Car Hire||60|
|May 19||By Stationary||120|
|May 25||By Tiffin Charges ||60|
|May 31||By Smith||85|
|May 31||By Balacane C/D|
|Rs.60||Mar 1||By Balacane C/D|
Taking these easy but systematic steps when setting up your petty cash book will help you protect your daily expense cash flow, ensuring it is used appropriately and recorded systematically.