Mastering Petty Cash Management: A Key to Financial Control and Accountability

Definition

Petty cash is a small amount of money an organization keeps on hand to pay for minor expenses. This amount, referred to as the Petty Cash Float, is approved based on the organization’s policy.

The Petty Cash Custodian, designated according to the company’s procedures, is responsible for managing petty cash transactions. This individual handles all approved transactions, maintains records (vouchers and receipts), and accounts for the float when it is exhausted. Payments and replenishments are made following established guidelines to ensure accountability.

Who is the Petty Cash Custodian?

The custodian role is assigned based on company policy and may be filled by:

1. An Assistant Accountant
2. A Cashier
3. An Accountant

Purpose of Petty Cash Float

The petty cash float serves the following purposes:

1. To ensure liquidity for small, immediate expenses.
2. To prevent delays in processing minor payments.
3. Enhance financial control and accountability through the proper tracking of petty expenditures.

For security, the float must be stored under lock and key. Regular reconciliation by the custodian ensures accurate tracking of funds, detects errors, and supports internal controls.

Petty Cash Reconciliation

Definition
Petty cash reconciliation involves verifying petty cash transactions to ensure the float is properly accounted for.

Purpose

1. To verify the accuracy and completeness of transactions.
2. To detect and prevent errors, omissions, theft, or misappropriation of funds.
3. To strengthen internal controls and accountability in financial management.

Steps in Petty Cash Reconciliation

1. Organize all vouchers, receipts, requests, and approvals related to petty cash.
2. Match petty cash transactions with the general ledger.
3. Reconcile the petty cash balance with the ledger.
4. Investigate and resolve discrepancies, if any.
5. Approve and document the reconciliation.

Conclusion

Petty cash management is a crucial internal control process in every organization. It ensures accurate handling of small expenses, minimizes errors, and strengthens financial accountability.

Internal auditors and accountants must collaborate to maintain and implement this system effectively. Young accountants are encouraged to actively learn, unlearn, and relearn this essential process to ensure vibrant and efficient accounting practices.