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Different scenarios of petty cash

Tools & Tips

The petty cash book: Time to optimise your records

Musical instruments, bread-making, and currency. What do these three seemingly random concepts have in common? 

They’ve all been around since the Stone Age

Although the trading of metals for resources has changed quite a bit since 10,000 B.C., the fact that currency has lasted so long makes one thing clear: cash is essential in any business. 

We've definitely picked up some tips and tricks since then, but there are still many companies that are exposed to errors and fraud when their petty cash box isn't handled with care.

But the solution is simple: a good petty cash book system. 

In this guide, you’ll discover the different petty cash book systems out there and explanations on how to adopt them, in order to get your business managing its petty cash even better. But we’ll leave the baking and musical composition to the experts. 

What is a petty cash book? 

The term petty cash book in accounting refers to the documentation of cash spending in a company. 

It’s easy to get excited and think about using a petty cash book for all cash expenses, but save yourself from making this mistake.

A petty cash book is only used to record day-to-day small and unplanned cash expenses, like office supplies or postage costs. 

The purpose of a petty cash book is to keep things simple. The log should only contain petty cash spending which separates it from cash-on-hand (the latter of which is recorded in a ledger of its own). 

Every once in a while, the petty cash fund is reconciled and refreshed, then accounted for in a company’s expense system. This typically happens once per month or once per quarter – whatever is best for your business.

Who takes care of the petty cash book?   

Since petty cash systems are more on the simple side of things, the petty cashier (the employee who is in charge of handling the petty cash book) isn’t usually an expert in the area and is there to relieve some pressure on the finance or accounting team. Managing the petty cash book is a great way to give more responsibility to a junior staff member. 

But with larger companies, if the finance process is inefficient, it can cause problems for the wider accounting team. 

So it’s especially important to get the petty cash book right so that your accountant(s) can focus on higher value tasks –  like how to spend smarter and plan for the future. 

How to use a cash book

A petty cash book helps manage small expenses by recording in two columns: cash credits and debits.

The credit column gets the date, amount credited, the total value of the current petty cash fund and any additional notes. With all petty cash received by the petty cashier or custodian. 

In the case of out-of-pocket spending, your people will typically ask for reimbursement after the fact. In this scenario, the employee will bring the receipt for their purchase; also known as a petty cash voucher.

When the employee exchanges their receipt for cash, the petty cash custodian fills out the details in the petty cash book on the “debit” side. This will include all the usual suspects like the date, transaction value, purpose and running total. 

And when the time comes, petty cash book expenses will be categorised and logged into the overall expenses system. 

Lining petty cash up with the wider expenses is important for maintaining company accounts, forecasting and budgeting for the future. 

Ideally, there’s a perfect match. But sometimes this doesn’t happen, which is why the petty cash book acts as a good safety net for auditors and accountants. 

Examples of petty cash books 

With plenty of petty cash templates available online, it might be tempting to simply download the first one you see. But that would be a mistake as a petty cash log should be as unique to your business as your fingerprint is to you. 

Let’s dive into some examples.

Simple petty cash book

The simple book is a basic version of a petty cash log. The date, value of the transaction, whether the money is coming in or out, and the remaining balance of the petty cash fund is logged. 

A simple petty cash book is recommended for small businesses that don’t have too many transactions. Or where the petty cash fund is purposefully low and the expenses are similar. 

Analytical petty cash book

An analytical petty cash book is a more complex petty cash spreadsheet-style document. As well as providing the data around petty cash expenses, it offers more detailed insight into track spending distribution. 

Why is this useful? 

Your finance team can gain insight into petty cash spending habits and create a strategy to make better spending decisions for the business overall.

Single column cash book format vs double column cash book format

You might also want to consider single vs double entry cash book examples. 

Single column cash books only record cash-based receipts and payments. So while they offer a good indication about the state of your petty cash, single column cash books don’t tell us much about cash on hand.  

These days, almost all businesses work with double cash book entries. We know that “petty cash” doesn’t actually always refer to cash – sometimes your people will use their business cards to make purchases. This is an extra column of bank activities (including bank receipts and payments), alongside the standard cash entries.

With this system, you get double the information with insight into the state of overall cash flow combined with data around the physical petty cash box.

What type of petty cash system is best for your business? 

There are a couple of different standards for petty cash systems. Most often, the system you use will be determined by the needs of your company.  

Open and fixed systems of petty cash

The open system works by giving a lump sum to the petty cash fund, and waiting for this to be spent without a time limit. It will be reconciled and replaced upon being 100% spent, no matter how long (or short) it takes to spend it. 

The other petty cash book example is a fixed system. It refers to giving your team a petty cash amount for a defined length of time. For example, £1,000 for the quarter. In this case, the amount may be spent or not during the time, but once it has run out… that’s it! 

At the end of the quarter, the accounts will be reconciled using petty cash receipts or vouchers and a new £1,000 will be added to the pot for the following quarter. And depending on how much petty cash is being spent, by the end of the year, your petty cash fund could’ve even accumulated a few pounds. Cha-ching.    

Imprest system of petty cash

An imprest system resembles a budget, using an estimated petty cash amount across a specified period of time. This is the most accurate way to work with a petty cash book.  

Your accountancy team will supply the petty cash pot with a defined amount that has been calculated based on historic petty cash spending. For this example, let’s say £500 for the month. 

At the end of the month, the finance team will reconcile the petty cash using receipts and petty cash vouchers. The petty cash jar will be topped up back to the original amount (in this case, £500) at the beginning of the new month. 

Are petty cash books all they’re cracked up to be?

When it comes to petty cash books, there are a few arguments for and against having one. And once you get into the nitty gritty of the different systems and set ups though, it can get even more debatable.  

Benefits of a petty cash book

  • Using an imprest system, it’s almost impossible to overspend your petty cash since you know the maximum value of the fund at any given time
  • Filling out a petty cash book doesn’t require formal training or qualifications. They’re a great way to give a team member some extra responsibility without a steep learning curve
  • With frequent audits, finance should be able to easily spot errors and control spending using a petty cash book
  • Petty cash book columns (in a practical sense) are simple and convenient to fill out

Disadvantages of a petty cash book

  • Using an open or fixed system, there is a risk of overspending when it comes to petty cash
  • A petty cash book offers little security against theft, which if occurs, would be tricky to discover what has exactly has happened 
  • If the petty cashier does not document everything properly in a petty cash book, there can be errors affecting your entire business
  • Petty cash books may be considered outdated or inefficient for modern companies and their employees

Is a ledger the same as a petty cash book? 

You may have heard of the term, “posting to the ledger” before. While the terms “ledger” and “book” are pretty much interchangeable in other scenarios, these are NOT the same in regards to petty cash.

The ledger is an overall cash-on-hand record. The book is solely for petty cash.

But, how do they relate to one another? 

Small expenses are recorded in the petty cash book and are grouped into different spending categories (remember that double cash book system from earlier?). 

When the petty cash book is “posted” to the ledger, the accountant will mark down the value of each expense category in the overall cash or expense management system.  

Essentially, whatever has been debited from the petty cash over the course of the month is noted in the ledger in accordance with its category. For example, if £45 of the petty cash was spent on a catered lunch for employees, this will be noted under “food and drink” in the cash ledger. 

When the petty cash jar receives its funding for the next period, £45 of the fund will be taken from the overall food and drink expense budget. 

Looking for a new way to manage petty cash?

The petty cash book has been around since the dawn of time. Heck – even the first dynasty of ancient Egypt recorded bribery and corruption cases in business. Instances like those unfortunately still happen today, so we can decipher some aspects haven’t really changed since cash was first introduced. But now, the solution is obvious.

With petty cash software, your people can forego the pen and paper in favour of a digital  log. So whether someone withdraws cash using their business expense card or dips into the petty cash jar, they can simply snap their receipt with their mobile phone and let the reconciliation process automatically begin. 

Take Pocket, bundling out-of-pockets expenses, cash spending and mileage all in one space so you don’t have to log petty cash book transactions by hand anymore. 

No more collecting coins and no more errors. With apps on every employee’s smartphone, you keep everyone accountable and cut out the risk of fraudulent purchases too. 

Need a hand moving out of the Stone Age? Why not reach out and let Pleo get you up to speed.

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