This is part of a series of the Top 10 Bookkeeping Mistakes Small Businesses make. To read the others, click here.
“It’s just a few dollars.”
“I don’t have my business credit card – I’ll just use cash.”
“Take that from petty cash – we’ll top it up later.”
These kinds of situations and statements are often made in small businesses. As we’ve talked about before, it’s easy when you run your own business to confuse business and personal matters to the point that it is hard to remember out of which account expenses are being taken. (Or, perhaps it doesn’t seem to matter.)
One of the results is that bookkeeping for your ‘petty cash’ – or your use of cash in and for the business – becomes disorganized or completely lost. It may not seem to matter – a few bucks here, a few there – but over time it can cause discrepancies in your accounts. And just because amounts are small doesn’t mean that they shouldn’t be accounted for properly.
You probably keep a stash of “petty cash”, so that you or your employees can quickly and easily cover small and incidental business expenses that almost aren’t worth taking out the credit card for. (Or for suppliers who don’t even take cards or online payments.) Things like postage stamps, snacks from vending machines, minor office supplies, or last-minute purchases. There’s nothing wrong with having petty cash – the problems come when there are no systems or documentation related to your (and your employees’) use of cash.
Keeping Control of Petty Cash
Here are a few things you can do to ensure that your petty cash doesn’t run away with itself (or with someone else in the business):
Make sure petty cash is in a lockbox or other secure place.
Keep the total amount of petty cash low – don’t let it become a temptation to be misused. This depends on your company – if it’s a very small business with a few employees, perhaps $100 is enough. If you have a larger business, you may need up to $1,000. The higher the petty cash amount, the stricter your systems should be.
Identify one or two key people with the authority to distribute cash, or allow petty cash purchases. Document who has access and authority – that way, you’re not handing out petty cash lockbox keys right and left until you can’t remember who has access and who doesn’t.
Document the system for taking cash, and the penalty when this is not followed through.
Identify the maximum that may be taken out for one transaction – for example, if your entire petty cash fund is $100, you may want to limit transactions to no more than $50.
Keep a simple notebook with the cash box, and enter the date, amount, and use of the cash. If possible, note what category it falls under (i.e. Administrative, Employee Expenses, etc).
Make sure any disbursements of the cash are allowable business expenses – not just things purchased because there is money handy.
Run regular “audits” of the petty cash (by someone other than the person responsible for petty cash). Add up cash and outstanding receipts to ensure they equal the standard amount of cash.
When these simple steps are followed, you can ensure that your bookkeeping will not cause you headaches!