Petty Cash
Petty Cash is a small amount of cash kept on hand by a business or organization to cover minor, everyday expenses. These expenses typically include office supplies, transportation costs, and small employee reimbursements. The purpose of maintaining a petty cash fund is to simplify and expedite the handling of small payments, avoiding the need for frequent check writing or bank transfers. Petty cash is usually managed by a designated custodian, and each use of the fund requires a petty cash voucher to be filled out. Regular reconciliations are conducted to ensure the proper use of funds and the accuracy of records.
Definition: Petty cash is a reserve of cash kept by a business or organization to cover small, everyday expenses. These expenses typically include office supplies, transportation costs, and minor employee reimbursements. The purpose of a petty cash account is to simplify and expedite the handling of small payments, avoiding the need for frequent checks or bank transfers. Petty cash management is usually handled by a designated person, and usage requires filling out petty cash vouchers and conducting regular counts and records to ensure proper use of funds and accuracy of accounts.
Origin: The concept of petty cash originated from the need for businesses to manage small, routine expenses efficiently. As businesses grew in size and complexity, petty cash became a common financial management tool to ensure smooth operations without the delays associated with more formal payment methods.
Categories and Characteristics: Petty cash can be divided into two categories: fixed petty cash and temporary petty cash.
- Fixed Petty Cash: This is a portion of cash that a business keeps on hand for ongoing or periodic small expenses. It is characterized by a relatively fixed amount and strict management.
- Temporary Petty Cash: This is a cash reserve set up temporarily for specific periods or projects to handle particular small expenses. It is characterized by flexible amounts and usage periods.
Specific Cases:
- Case 1: A manufacturing company experiences a sudden equipment breakdown during production and needs to purchase parts immediately for repairs. Thanks to the petty cash reserve, the company can quickly pay for the parts, ensuring a swift recovery of the production line.
- Case 2: A retail company temporarily increases its petty cash reserve during holiday seasons to handle potential sales surges and urgent procurement needs. This allows the company to respond flexibly to market changes and ensure smooth sales operations.
Common Questions:
- Question 1: How much should be set aside for petty cash?
Answer: The amount of petty cash should be determined based on the size of the business, the nature of its operations, and historical small expense patterns. It should be a reasonable amount that can cover typical small expenses. - Question 2: How should petty cash usage be managed?
Answer: Petty cash management should be handled by a designated person, with detailed expense vouchers filled out for each use. Regular counts and records should be conducted to ensure proper use of funds and accuracy of accounts.
