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What Are the Steps for Petty Cash Reconciliation?

Analyzing receipts is an important step in petty cash reconciliation.
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  • Written By: Osmand Vitez
  • Edited By: Kristen Osborne
  • Last Modified Date: 29 September 2014
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Petty cash is a small amount of money a company will keep on hand for immaterial expenses. Petty cash reconciliation is the process of looking at the receipts for petty cash expenditures and matching the total back to the original cash amount. Steps often include reviewing individual petty cash requests, analyzing receipts for money spent, balancing the cash, posting the journal entries, and replenishing the money. The accounting department typically handles these duties, although small companies may rely on owners or a secretary.

Most companies require employees to fill out a small document or request for petty cash. This may need managerial authorization so the company avoids giving out money for non-business purposes. This also helps accountants track who has petty cash funds and follow up with these individuals to ensure the money is not stolen by the employee. The petty cash request will also go back to the accountant along with the leftover cash and purchase receipt for the petty cash reconciliation.

Accountants must carefully analyze the receipts when going through the petty cash reconciliation. This allows accountants to discover if the money was spent improperly or that goods purchased were not needed by the company. The basic process for reconciling individual receipts is to match the initial request for funds to the leftover cash and receipt. Once completed, the accountant will then reconcile the entire petty cash funds.

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The petty cash reconciliation involves taking the starting balance of the petty cash box and subtracting the total expenditures based on the returned receipts. The accountant can then add up the cash currently in the box and compare this to the calculated figure. If the figures match, the petty cash reconciliation is complete. Differences may require the accountant to find the error and discover if the cash is higher or lower than the calculated figure. Companies may not see these differences as material, resulting in an incomplete reconciliation.

Once the receipt matching process is complete, the accountant will create a journal entry to post the expenditures into the accounting ledger. Large organizations may post the amount into a miscellaneous expense account. Small businesses may desire to separate these expenditures so they do not have large miscellaneous expense accounts. Once posted, the accountant will file a request to replenish the petty cash funds. This typically involves sending a check request to the accounts payable department, requesting authorization from the owner or manager, and cashing the check at the company’s bank. The funds will then go into the cash box for future use.

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KaBoom
Post 3

@SZapper - I've never worked in an office that had a petty cash box, but I imagine if you did the cash reconciliation form and the box came up short, the person in charge would have to make up the difference. That's usually how it works in a restaurant if your table shorts you on the check, for example.

On the other hand, if the reconciliation was done by an accounting department at a larger firm, I don't know who would make up the difference. Maybe the company would just absorb it as a loss.

SZapper
Post 2

@indemnifyme - That system makes sense in an office where you don't use petty cash all the time. I imagine in an office where they use the petty cash every day they would have to do account reconciliation on the petty cash every day instead of once a week.

I always wonder how they decide who does the reconciliation in a small office. It would definitely have to be a trustworthy person. After all, you wouldn't want to put someone in charge of the petty cash who might steal it! I also wonder why would happen if the petty cash box comes up short?

indemnifyme
Post 1

The insurance office I used to work at kept a petty cash box in the office. However, we very rarely used it. We would use it for random expenses like running to the office store to get printer paper if we ran out between deliveries, or occasionally getting coffee and bagels for a breakfast meeting.

Since we didn't use the petty cash much, we only used the petty cash reconciliation form once a week, on Fridays. It just didn't make sense to do it every single day, since we would often go a few days without using it.

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