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A petty cash account is not a type of bank account but more of a fund maintained inside a business. The petty cash amount contains a small amount of cash and is mainly used for purchases when using checks, debit cards or credit cards would be frivolous. The cash can also be used to make change if there is not enough in the cash register. Only one or two people are assigned to the petty cash account, and any money taken out or placed in is accounted for in a book. The cash is kept in a lockbox and typically stored at the place of business.
Petty cash accounts are always used to store a small amount of money. The most common amount is around $100 US Dollars (USD) for small businesses that do not have many expenses. Larger businesses may keep up to $1,000 USD, but usually not more than that because higher amounts increase potential loss if theft occurs. To store the petty cash, it is typically locked in a lockbox that is kept at the business.
The purpose of a petty cash account is to have a small pool of money for when small purchases need to be made. The account comes into play when a purchase is so small that it's not worth the hassle of going through the formal channels required to get a check cut or to get permission to use a company credit or debit card. Change can also be made from the petty cash account when there is not enough cash in the cash register and, if no one is available to get money from the bank, petty cash can temporarily replenish the register.
Whenever money is taken out of or placed in the petty cash account, someone marks down the amount. For example, if $5 USD is taken out, even if there is change left over from any purchases, the $5 USD is marked down as a withdrawal. This ensures there is no theft occurring, and also makes sure managers know exactly how much money is in the account. When the change is returned, it also is noted.
Few people within a company have access to the petty cash account. More likely there will be one or two people in charge of the account. If one person, he or she will be in charge of removing cash from the account and replenishing the account, along with marking down any withdrawals or deposits. If there are two people, either both people are in control of the money and the bookkeeping or one person is assigned to the money and another is assigned to the bookkeeping.
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