Finance

Posted 30 Apr 2020, Editor's Desk

How to Setup a Petty Cash Book For Your Small Business



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.
700May 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 31By Smith

85

May 31By Balacane C/D



700



700
Rs.60Mar 1By 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.


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