Managing Petty Cash

If you run a business, you may need to keep some petty cash on hand to cover small business expenses. Every company works differently. Some companies may opt to have employees submit any and all legitimate business expenses for reimbursement through expense reports. Some may prefer to keep a small amount of petty cash on-hand for those immediate small business expenses like local transportation (ex: taxis/cab fare to/from client meetings), general office expenses (ex: milk for the office), office supplies, postage and so forth while having employees submit any other legitimate business expenses for reimbursement through expense reports.

If you do keep petty cash on hand for those immediate small business expenses, there are some steps to take to ensure those funds are properly managed.

First, keep petty cash on-hand to a bare minimum. Typically, around $100 to $300 should be adequate from a monthly perspective. Your Accounting/Finance department should record these funds on the books accordingly (ex: Petty Cash GL account).

Second, secure all petty cash funds. If you use a petty cash lock box, be sure to place the lock box in a locked drawer/cabinet and if possible, within a locked office. Do not keep petty cash in an open area where everyone and anyone has access to it.

Third, make sure to have a designated responsible person in-charge of managing petty cash. The designated responsible person along with the business owner should have access to the lock box at all times. Keep the number of people with access to petty cash to a minimum. This may be your Head of Accounting/Finance (ex: Controller, Director of Finance, Accounting Manager), Head of Operations, Office Manager, etc. This individual will be responsible for processing any petty cash requests (a petty cash request form is highly recommended), approving such requests or obtaining the required approvals from senior management or ownership, tracking the usage of the petty cash funds (ex: Excel spreadsheet), making sure all receipts associated with the usage of petty cash are collected and retained, reconciling all petty cash transactions and coordinating with Accounting/Finance on a regular basis.

Fourth, have a clear written policy and procedure on the use of petty cash funds (ex: what business expenses can petty cash be used for, how do employees request petty cash funds, what are the documentation requirements for petty cash, etc.) and be sure all employees have a clear understanding of the policy and procedure. Petty cash should be treated and managed like any other company funds and used appropriately and responsibly for legitimate business expenses only.

At the end of each month prior to month-end close, the designated responsible person should work with Accounting/Finance to ensure the petty cash transaction expenses are properly recorded/posted on the official books. This is also a good time to determine if the petty cash account requires replenishment.