We all are well aware that one of the most challenging assets to manage within any company is its cash. One way to manage cash is for a company to mandate all purchases to be done by cheque. However, there are cases in which the use of a cheque is not practical.
Imagine that the Galaxy’s Best Yogurt is out of milk one day. It is impossible to work without milk, and the usual supply does not arrive for another 48 hours from the distributor.
To sustain the process, it is important to go to the supermarket across the street and buy three gallons of milk. It is not effective for time and expense to write a cheque for this small order, meaning that businesses build a petty cash fund, a fixed sum of cash kept on hand, to make payments for small regular transactions.
A petty cash fund is a form of imprest account, which means that it holds a certain sum of cash substituted as it is expended to retain a fixed balance.
What Is Meant By Petty Cash?
Businesses usually hold small cash sums to cover small miscellaneous expenses, such as entertainment and stationery charges. These transfers are usually done by a petty cash imprest system that fixes the volume of ‘Float.’ This is the full sum of cash that can be kept at any time. Every time the cash amount is limited, a petty cash imprest is inserted with cash by drawing a cheque. The refund’s value must be equal to the cost spent in petty cash from the time of the last refund. Petty cash balance is returned to the level of the float following repayment.
Any time a payment is made by petty cash, it is usually reported in the cashier’s petty cash journal. When a cashier demands the refund of petty cash, he shall create a petty cash voucher documenting the expenses incurred by petty cash during the time after the last refund, along with any supporting invoices serving as photographic proof of the allegation. If all is in order, the approved signer (e.g., the operations manager) draws a cheque equal to the value of the cost detailed in the petty cash voucher.
The Petty cash printing scheme is an easy way to handle minor day-to-day expenses. However, because cash is the entity’s most liquid assets, strict protections are required to prevent potential misappropriation. The following controls can be used for protecting petty cash:
- Petty cash must be stored in a safe location ( e.g., money box)
- Petty cash must be stored safely in a safe while it is not in service.
- The cashier should be responsible for managing supporting invoices for purchases done by using petty cash.
- Cash counting must be made from time to time to ensure the cash balance in the Petty Cash Registry is all accurate.
- The sum of petty cash float should not be raised significantly.
- Since the Petty Cash List is not part of the double-entry scheme, transfers done through petty cash are eventually placed in General Ledger and the Cash Register.
What Is Meant By Cash Float?
Although paying by credit card, debit, or smartphone pay is popular in many sectors; some people also choose to pay in cash. Getting a cash float, which is the cash you have in the registry to provide customers with change whenever they pay in cash, is a vital business process. If you have a minimal float, you can run out of individual denominations and end up with angry customers. If you’ve got so much float, you may need to make a cash drop amid the day to deter robbery.
The cash float helps cashiers to bring about change for customers early in the day or transfer until a large number of cash purchases accrue to make the change from the day’s sales. Some companies and organizations often regard petty cash as a cash float and use this system to minimize the number of cheques or credit card charges required for small services and transactions.
What Is The Difference Between Petty Cash And Cash Float?
A business seller with a lot of money — apart from the one earned by the business they’re hoping to peddle — may float this money through the operation to make it look like a sale. This raises the apparent worth of the selling and buying price of the company. Cash floating is typically the simplest thing to hide if a vendor has two separate companies. Money can be flown from one company (because there are no taxes charged on the function of that business) to the one sold so that taxes are paid on that operation only.
On the other hand, to set up a petty cash system, the basic sum of money falls from a company checking account. Employees accept cash from the petty cash account, and then each transaction is recorded with a date, number, vendor (who was paid), and business intent. Any transaction using petty cash must be reported in the same manner as all other company profits and expenditures. The petty cash slips and petty cash logs can help obtain these costs so that they can be used to cover revenue for corporate tax purposes.
Summing it up, Petty cash has a lot of control risks involved. If you correctly follow the cash management/security routine, you will be able to keep petty cash under control. Build an approved float. Only set it up for less than a month of expenditures. Designate the custodian to monitor the physical access to the box. Finally, the caretaker must ensure that the cash and receipts complete the float.
As far as the cash float is concerned, to speed up the collection float, you need to compress the time between obtaining cash/cheques and depositing it in the vault. To do this, you should set up a post office box with all invoice payments. This decreases the probability that cheques will be lost in the mail on the way to the office. You can even set up a remote deposit with your bank account. This would encourage you to deposit cheques on the day they arrive, as soon as your accountant or payment clerk reports the cheques in your accounting system.