MAINTAINING A PETTY CASH FUND
In every well-run business, in order to maintain good cash control, there must be written
evidence of every disbursement of money. For this reason, almost all payments are made from
the company’s bank account by issuing cheques, or perhaps occasionally signing commercial
drafts that automatically become receipts when they are endorsed and cashed.
It is often necessary to make a payment by cash because the amount involved is small or because
a cheque is not acceptable. For example:
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$1.50 parcel post C.O.D. charge
.50 shortage of postage on in-coming mail
$5 taxi charge for a rush order of supplies
$2 payment for office supplies
To meet these situations, a small amount of cash is kept on hand. Called the petty cash fund, it
is given to one person, called the petty cashier. This person usually has no connection with the
accounting system of the company.
To open the fund, a cheque is written for an amount that should be sufficient for several weeks’
expenditures, say $100. Cash this cheque, place the money in a cash box, and keep the box in a
safe but convenient location.
When the petty cash fund runs low, the petty cashier presents the vouchers to the accountant.
The vouchers prove that authorized payments were made. The accountant will then issue a
cheque equal to the total of the vouchers. The petty cashier cashes the cheque and places the
money in the petty cash box. The petty cash fund will now be back to its original amount. The
fund is replenished when it runs low and at the end of the fiscal period before financial
statements are prepared.
Petty cash money is only given to persons authorized to receive it, and a signed voucher is
requested for receipt purposes. Payments made must be authorized by a properly supporting
petty cash voucher. Petty cash vouchers are kept in the petty cash box with the remaining cash.
The vouchers prove that legitimate, authorized payments were made because they have been
signed by the party receiving the cash payment.
Suppose a petty cashier starts with $100 cash in the petty cash fund. At any time, the petty cash
can be proven by adding the total of the cash in the box to the total of the vouchers in the box.
Cash plus vouchers should always equal $100.
Petty Cash Notes
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Exercises
1.
Study the petty cash book below and answer the following questions:
a.
b.
c.
d.
e.
f.
g.
h.
On what date did the company establish its petty cash fund?
How much money was used to open the fund?
For what reasons was money paid from the fund on December4?
Why is every expenditure entered in two columns in this book?
How much money is left in the fund on December 11?
How does the secretary determine this amount?
How does the secretary prove this amount?
How does the secretary determine how much money is required for the
replenishing cheque on December 11?
What will be the amount of the replenishing cheque?
i.
2.
A petty cash fund was established with $100. At present the petty cash box contains:
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6 vouchers for payments totalling $37.50
2 twenty-dollar bills
1 ten-dollar bill
2 five-dollar bills
1 loonie
Have any errors been made in the handling of the petty cash?
3.
A petty cash box contains 16 payment vouchers which total $46.25. The fund was
started with $50. How much cash should be in the box?
4.
On September 7, Print-o-matic Ltd. decided to begin using a petty cash fund. A cheque
for $50 was issued and cashed. The $50 cash was given to the receptionist who was to
act as petty cashier. The receptionist/petty cashier was told to obtain authorized
vouchers for all payments. No payments could exceed $20. The petty cash was to be
replenished when the balance in the box reached $10. When this happened, a summary
of vouchers was to be prepared and given to the accountant. Prepare the Petty Cash
Summary with the following information.
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5.
delivery expense $15.75
office expense $6.33
advertising expense $19.00
postal expense $3.86
You are working for Cascade Enterprises. A petty cash fund of $100 has been
established. The petty cash for the month of November is as follows. Write the Petty
Petty Cash Notes
Page - 2
Cash Vouchers and a Petty Cash Summary for the month.
Nov. 1
2
4
6
15
23
26
6.
On the petty cash book record the following transactions:
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7.
Fund has been replenished and balance is $100.00
Priority Post package
$17.96
Vancouver Sun for October
$12.50
Cab fare
$9.00
Extra cleaning of office
$25.00
Manilla envelopes
$12.50
Ad in Student newspaper
$5.00
On October 1, 2---, the balance cash on hand was $200.
October 3, bought envelopes for the office, $2.25, voucher No. 1.
October 6, paid woman for cleaning the office $35.
October 7, bought a new stapling machine costing $17.40 to be charged to office
Equipment account.
October 9, paid taxicab fare, $12.50.
October 12, paid CN $16.15 for shipping charges on incoming goods.
October 15, bought typewriter ribbons for the office, $24.75.
October 16, gave $20 to canvasser for the Christmas Fund which should be charged
to Donations account.
October 19, paid $31.25 to the CP Express to pay charges on incoming shipment.
Rule the petty cash book, and bring down the balance cash on hand.
On October 19, the petty cashier obtained a replenishing cheque, No. 1072, for
$40.70.
Continue the petty cash book from #6 above, with the following transactions:
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On October 22, paid for lunches costing $12.75, voucher No. 9
October 23, bought carbon paper for the office, $13.05
October 25, bought a new ledger binder for the accountant, $17.18
October 27, paid the Ace Cartage Company $11.45 for delivering a parcel to a
customer, the amount to be charged to Delivery Expense account.
October 28, paid Wilson Transport Company $13.25 shipping charges on incoming
merchandise.
October 29, paid for a telegram $22.70.
See Next Page!
 October 30, bought postage stamps costing $5, which is to be charged to Postage
Expense account.
 October 31, gave $10 cash to the proprietor, the amount to be charged to Wm. Calder,
Drawings account.
Petty Cash Notes
Page - 3
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Rule the petty cash book and bring down the balance cash on hand.
On October 31, the petty cashier obtained a replenishing cheque, No. 1198, for
$94.62.
Finally, total the receipts column and rule a double line across the date column, the
voucher-number column and the receipts column.
Petty Cash Notes
Page - 4
Additional Exercises
2.
PETTY CASH RECONCILIATION
Opening Balance as per records
$100.00
Less: Vouchers
(37.50)
Closing Balance
$62.50
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Cash on hand
2 x 20
1 x 10
2x5
1x1
$40.00
10.00
10.00
1.00
$61.00
Cash UNDER
3.
(61.00)
$1.50
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A petty cash box contains 16 payment vouchers which total $46.25. The fund was
started with $50.
$3.75 cash should be in the box.
4.
Print-o-matic Ltd.
Petty Cash Summary
September 2000
Opening Balance
Less:
#1
#2
#3
#4
Cash remaining
$50.00
$15.75
6.33
19.00
3.86
$44.94
(44.94)
$5.06
Cascade Enterprises
Petty Cash Summary
Petty Cash Notes
Page - 5
November 2002
Opening Balance
Less:
#1
#2
#3
#4
#5
#6
Cash remaining
Petty Cash Notes
$10.00
$17.96
12.50
9.00
25.00
12.50
5.00
$81.96
(81.96)
$18.04
Page - 6