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.
Why is it important for you to maintain a petty cash book?
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.
By accounting these expenses in the petty cash book, it becomes easier for you to track tax-deductible expenses, making journal entries and also helps in separating personal expenses from business expenses.
4 Easy Steps: Setting up a Petty Cash Book
Step 1
: 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) |
|
|
Example:
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 book
May 3 – Postage paid Rs.50
May 6 – Paid taxi hire of traveling employee (xxx to location Y) Rs.100
May 8 – Paid cleaning lady Rs.125
May 13 – Telegram sent to Delhi Rs.40
May 17 – Cart hire paid on goods bought for business Rs.60
May 19 –
Stationary purchased Rs.120
May 25 –
Customer’s tiffin charges Rs.60
May 31 – Settled the pending balance due to Smith Rs.85
| Amount Received | Date | Particulars | Voucher No. | Ledger Folio | Expense (Amt. Paid) |
| Rs. | 2019 | Rs. | |||
| 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 | ||||
| 700 | 700 | ||||
| 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.