Petty Cash Replenishment
Petty cash replenishment is the process of adding funds back into the petty cash box or drawer to bring it back up to the fixed balance after some of the petty cash has been spent. The purpose of petty cash replenishment is to ensure that there’s always enough cash on hand to cover small, immediate expenses.
Here’s a step-by-step breakdown of a typical petty cash replenishment process:
- Total the Receipts: The petty cash custodian adds up the amounts on all the receipts or petty cash vouchers that have been collected since the last replenishment. This total should equal the amount of cash that has been disbursed from the petty cash fund.
- Reconciliation: The petty cash custodian then counts the cash remaining in the petty cash box. When added to the total from the receipts, this amount should equal the original balance of the petty cash fund. If it does not, there’s a discrepancy that needs to be investigated.
- Request for Replenishment: If the cash in the box is running low or has run out, the petty cash custodian prepares a report detailing the expenses paid out of the petty cash fund and submits it to the appropriate person (often someone in the finance department or a manager), who writes a check for the amount needed to bring the petty cash fund back up to its original balance.
- Replenishing the Petty Cash: The petty cash custodian cashes the check and puts the cash into the petty cash box. Now the petty cash fund is back to its original total, and the process starts again.
- Recording the Transactions: Once the petty cash fund is replenished, the expenses recorded in the petty cash receipts or vouchers are posted to the appropriate expense accounts in the company’s general ledger.
Replenishing the petty cash fund regularly (e.g., weekly, monthly) helps keep the bookkeeping for the fund up-to-date and allows the company to maintain an accurate record of its petty cash transactions.
Example of Petty Cash Replenishment
Let’s say that the ABC Company sets up a petty cash fund of $200 at the beginning of the month. By the end of the month, the petty cash custodian, Mary, finds that the petty cash fund has been reduced to $50. This means that $150 has been spent throughout the month.
- Total the Receipts: Mary totals all the receipts and petty cash vouchers that she has collected over the month, which should amount to $150.
- Reconciliation: Mary then counts the remaining cash in the petty cash box, which should be $50. The $50 in cash plus the $150 in receipts equals the original balance of $200, so everything checks out.
- Request for Replenishment: Mary prepares a petty cash report detailing the expenses paid out of the petty cash fund, attaches the receipts, and submits it to the finance department. The finance department reviews the report and receipts, approves the request, and writes a company check for $150 to Mary.
- Replenishing the Petty Cash: Mary cashes the check and adds the $150 back into the petty cash box. The petty cash fund is now again at its original balance of $200.
- Recording the Transactions: Finally, the finance department records the expenses that have been paid out of the petty cash fund in the company’s general ledger. The entries would debit the relevant expense accounts and credit the petty cash account for the $150 that was spent.
This process ensures that the petty cash fund is always adequately funded, that all petty cash transactions are documented and accounted for, and that the company’s financial records are accurate.