How to Reconcile Petty Cash
Reconciling petty cash is the process of verifying that the spending matches the expenses recorded in your petty cash log. Regular reconciliation helps prevent fraud or misuse and ensures your records are accurate.
Here’s a step-by-step guide on how to reconcile petty cash:
- Count the Petty Cash: The first step is to physically count the amount of petty cash on hand.
- Record the Total Petty Cash: After counting the petty cash, record the total amount in your petty cash reconciliation form or document.
- Compare with the Starting Balance: Compare the total amount of petty cash you have on hand with the starting balance (i.e., the amount of cash that was initially in the petty cash fund before any disbursements were made).
- Review Petty Cash Receipts: Look at the receipts and vouchers in the petty cash box. These should be provided every time petty cash is used. Add up the total amount of these receipts.
- Compare the Receipts Total with Disbursements: Compare the total amount of receipts to the disbursements recorded in your petty cash log. If there’s a discrepancy, there may be receipts missing, or expenses may not have been recorded correctly.
- Identify Discrepancies: If the total petty cash on hand plus the total receipts do not equal the starting balance, there is a discrepancy. Identify any discrepancies and investigate them.
- Correct Discrepancies: Once you’ve identified the source of any discrepancies, correct the issue. This could mean finding a lost receipt, recording an overlooked transaction, or addressing the misuse of funds.
- Replenish Petty Cash: Once the petty cash fund is reconciled, you can then replenish it back to the starting balance. The amount of replenishment should be the total amount of the receipts or the total disbursements from the petty cash log.
- Document the Process: Record the reconciliation in the petty cash log or in a petty cash reconciliation form. This should include the starting balance, total receipts, total disbursements, any discrepancies, and the replenishment.
- Implement Controls: To prevent discrepancies in the future, consider implementing controls such as requiring all petty cash disbursements to be supported by a receipt, having multiple people involved in the reconciliation process, or doing surprise petty cash counts.
Remember, regular reconciliation of petty cash helps maintain accuracy and accountability in the handling of these funds.
Example of How to Reconcile Petty Cash
here’s an example of how petty cash reconciliation might work in a small business:
- Count the Petty Cash: At the end of the month, you count the petty cash on hand and find that there is $50 left.
- Record the Total Petty Cash: You record the amount of petty cash currently in the drawer, which is $50.
- Compare with the Starting Balance: The starting balance at the beginning of the month was $200.
- Review Petty Cash Receipts: You gather all the receipts from the petty cash box. When you add them up, the total expenses for the month come to $140.
- Compare the Receipts Total with Disbursements: The petty cash log shows that $150 was disbursed during the month. This is $10 more than what the receipts total.
- Identify Discrepancies: You notice a discrepancy. The total petty cash on hand ($50) plus the total of the receipts ($140) equals $190, not the $200 starting balance. There’s $10 missing, and it seems to be due to the disbursement recorded in the petty cash log that doesn’t have a corresponding receipt.
- Correct Discrepancies: After some investigation, you discover that an employee forgot to provide a receipt for a $10 office supply purchase they made. They provide the receipt, and you add it to the receipt total, which now matches the total disbursements in the petty cash log.
- Replenish Petty Cash: Now that the petty cash fund is reconciled, you replenish it. The amount to be replenished is equal to the total receipts, which is $150, to bring the total petty cash back to the starting balance of $200.
- Document the Process: You record the reconciliation in your petty cash log, noting the starting balance, total receipts, total disbursements, and the replenishment.
- Implement Controls: To avoid such issues in the future, you remind all employees to provide receipts for any petty cash purchases they make and reaffirm the importance of accurate record-keeping.
This example demonstrates the petty cash reconciliation process and how to address discrepancies when they arise.