This article explains how to track petty cash including funds put into petty cash and expenses paid out.
Two Methods for Petty Cash
The first method involves writing ‘checks’ to specific vendors with expense accounts. Deposits to and expenses drawn on the Petty Cash account would periodically be reconciled to be sure your cash on hand is correct.
An alternate method is to use a Petty Cash Journal and make Journal Entries for expenses and reconcile only the cash transfers/deposits to the Petty Cash account. See Keeping a Petty Cash Journal below.
There are also two ways money can be “deposited” or put into petty cash. The method to use for your center depends on whether or not this money was ever physically deposited into the bank account.
If it was deposited, and then withdrawn, it would show up on your bank statement and would be included in your regular reconciliation process. If you typically deposit all the cash and checks received from the families then write yourself back a check for petty cash (or make an ATM withdrawal), you simply make the full deposit as usual. When you withdraw funds for petty cash, you record a check to a Vendor called Petty Cash, to transfer the funds from the checking account into the petty cash account. See Transfer to Petty Cash from Checking below for detailed steps.
In contrast, if you “hold back” some cash from the deposit to use for petty cash (in other words the money is never taken to the bank at all) or you take the full deposit to the bank but just have the teller give you some cash back, these types of transactions typically do not show up on your bank statement so you would want to be able to reconcile them separately from the checking account bank statement reconciliation process. You still make a deposit, but it goes directly to petty cash, rather than the checking account.
Set up a Petty Cash bank account and put some money into it as follows:
- Add a current asset account to your Chart of Accounts called Petty Cash. We’ll assign it GL# 1002 in our example. If you have more than one school, create separate accounts for each school.
- Be sure to make each account a Bank Account marked as a Checkbook (this will be important in reconciling your expenses).
- For each school, make this account a Deposit Account.
- Add the cash Beginning Balance for each account.
Cash withheld for the cash box should simply be deposited as a separate deposit to the Petty Cash account for each school. Process the Deposit Report as usual, but include only cash payments in the deposit, and choose the Petty Cash deposit account for that school. Add a comment to the report to indicate the money went to the cash box, not the bank. Closing the Deposit Report for Cash this way locks these payments for added security.
All Monies Deposited to the Bank
When all monies received including cash are deposited in the checking account, you will need to transfer cash into your petty cash box.
- To do this, in Expenses & Ledger add a New Vendor called Cash for each school, such as Cash – School XXX.
- When you write a check to this vendor it will then say “Pay to: Cash – School XXX”.
- Use the Standard button to enter the regular checking account from which the petty cash will normally be deducted. In this example that will be GL# 1000 My Checking Account. Also under the Standard Accounts button enter for reach school the appropriate GL# – in our example it would be 1002 Petty Cash as the account to which the money is being deposited. It’s really being deposited into the school’s petty cash box at the center, but you get the idea. The amount will vary so leave it as zero. Be sure to put a check in the box that says Automatically Import so this information will come up each time you issue a check to “Cash – School XXX”.
The transfer check: In this example we’ll assume we wrote a check for $300. If the money was taken from the ATM and no check was written then just use a check number of ZERO. This will serve to remind you that it wasn’t an actual check. Remember the money is being withdrawn from the Check Book and going into Petty Cash.
Note: You also have the option to record cash transferred from your bank to the Petty Cash account as a Journal Entry. A journal entry that involves your bank account is included in the Bank Statement Reconciliation process.
Recording Petty Cash Expenses
Once you have spent the cash from the cash box, you’ll want to record those expenses in Procare. You may record a check to each vendor just like you normally would for any Vendor Check, but make the Checkbook the money is coming out of your Petty Cash Account. You could make the check number 0 to know this isn’t really a check, or perhaps the date (i.e. 12312010) as a reminder to yourself when this expense occurred, to easily locate the associated receipt. In this example, we’ve issued a petty cash ‘check’ to Daisy Fresh Janitorial Service for $25.00, coming out of our Petty Cash Rogue Preschoolers account with a check number of 0.
Note: Be sure to keep your receipts for tax purposes as you spend the petty cash throughout the month. You’ll also need the receipts to itemize each expense as above.
Reconcile the Petty Cash Account
To reconcile, or closeout, the expenses periodically, follow the procedure for Bank Statement Reconciliation only you will be reconciling the petty cash account, not your checking account.
You may use a journal entry instead of issuing checks for petty cash expenses if you prefer. This would mean you cannot reconcile the petty cash expenses to actual receipts. However, this may be appropriate if you have only a few expenses to track each month.
- Follow the steps above to Setup your Cash Account(s).
- Create a Journal Type for each Petty Cash account.
- At the end of the month gather all the receipts together. Instead of posting ‘checks’ for each expense, post a Journal Entry (in the appropriate petty cash journal) to itemize each expense and show a decrease to the Petty Cash account. Remember the money is being withdrawn from Petty Cash and going toward Expenses. The total of your receipts should add up to the total amount of the debits in this journal entry. In our example we’ll say the total is $300 divided between Office Supplies, School Supplies, and Teacher Supplies. Be sure to keep the receipts for tax purposes!
You should follow the steps above to Transfer to Petty Cash from Checking above in order to reconcile the amounts withdrawn from your bank and put into petty cash. If you don’t deposit the cash to your bank, use the method for Cash Withheld.