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Petty Cash Reconciliation

What Is Petty Cash Reconciliation?

Petty cash is a relatively small amount of cash, in the form of bills and coins, available for employees to make minor purchases when a company credit card or check is either not necessary or not allowed. Purchases are usually for small items, such as office supplies, coffee and snacks, flowers, catered lunches, and small reimbursements.

Because it involves the use of actual cash, it is important for businesses to closely monitor the use of these funds. Petty cash reconciliation is the process by which the business ensures that its cash funds are being spent according to internal guidelines and policies and that all transactions are being properly documented with a receipt or invoice.

When Is Petty Cash Reconciliation Used?

Because petty cash involves actual currency contained in a lockbox or drawer, it is vulnerable to fraud, waste, and misuse.

Petty cash reconciliation is an important internal control to prevent this. Reconciling petty cash transactions on a regular basis is essential to identifying and correcting discrepancies and maintaining the integrity of the petty cash fund.

Petty cash reconciliation is usually conducted when funds are low and the petty cash custodian is requesting additional funds. The goal of the reconciliation is to determine that the remaining balance is equal to the beginning balance minus all transactions since the last reconciliation, as documented by the receipts and invoices. If the balances do not match, the difference must be explained and corrected.

OTHER TERMS

When considering petty cash, you may encounter these terms.

Balance Sheet

A balance sheet is a financial statement that provides a snapshot of the business’s finances. It provides a summary of assets, liabilities, and equity.

Cash Balance

Cash balance refers to the amount of money a business has on-hand at any point in time. Cash balance is calculated by adding the cash flow to the cash balance for the previous period. While petty cash refers to cash that is available for employee expenses, cash balance refers to the amount of money available to the business overall.

Cash Box

Petty cash is typically contained in a locked box or cash box. This secures the money and stores all receipts and invoices that pertain to the expenses.

Cash Flow

Cash flow refers to the net amount of money coming into and out of the business for the accounting period. It is distinct from petty cash.

Cash flow refers to the net inflow and outflow of money for the business overall, while petty cash is merely money that is set aside for minor expenses.

Cash-on-Hand

“Cash-on-hand" is also distinct from petty cash. Like petty cash, cash-on-hand may refer to currency, but it does not refer to cash that is available for employee spending. Examples may include cash in a register for making change with customers or funds received that have not yet been deposited at the bank.

It may also refer to other assets, such as bank accounts or certificates of deposit (CDs), that can be converted quickly to cash.

Invoices

Invoices are an important document in the petty cash reconciliation process. Invoices document purchases and other transactions. They provide important information about the transaction, including the purpose, the amount, and the date, which will aide in reconciling petty cash activities for the accounting period.

Petty Cash Custodian

A petty cash custodian will be assigned to manage the petty cash fund. This person will have a key to the locked cash box. He/she will be responsible for releasing the funds upon request and for gathering and storing all invoices and receipts. The petty cash custodian will not be assigned to conduct the petty cash reconciliation. That responsibility will go to someone who does not have access to the petty cash fund, to further deter fraudulent activities.

Reconciliation Process

The reconciliation process, as it applies to the petty cash fund, refers to the review of invoices and receipts to determine spending amounts and comparing this to the difference between the beginning and ending balances of the petty cash fund, to make sure that all amounts match. When amounts do not match, errors must be corrected

FAQ

How Do You Reconcile Petty Cash?

Petty cash reconciliation involves several basic steps:

  1. Cash on hand at the end of the financial period is counted. This represents the ending balance for the petty cash account.

  2. Receipts and invoices are reviewed and verified as appropriate and complete.

  3. Each receipt or invoice is logged as a withdrawal from the petty cash fund. Their amounts are totaled.

  4. Additional cash deposits are added to the beginning balance that was carried over from the previous period.

  5. The total of all withdrawals is subtracted from this amount. The result should equal the ending balance that was counted in the cash box.

  6. When discrepancies occur, investigation is required. This can involve examining who had access to funds, looking for missing receipts, and tracking down undocumented deposits.

  7. In cases where discrepancies are the result of fraud, additional internal controls are designed to prevent further occurrences.

Cash Application with BlackLine

Request a demo and we will show you how you can speed up your cash application process using accounts receivable automation to instantly match customer payments to invoices and reduce unapplied cash by up to 99%.