Petty Cash Meaning and How to Calculate it with Examples

Nag-alala ka na ba kung tama ang iyong pagkaunawa sa petty cash at kung paano ito makakatulong sa iyong mga layunin sa negosyo?

A study mentioned that out of 15 companies surveyed, 100% of Philippine companies have done petty cash management. They understand that controlling petty cash through financial management systems is crucial for success.

However, if you are unfamiliar with the concept of petty cash or want to gain a deeper understanding of its meaning, how to calculate, and manage it effectively, you are in the right place. In this article, we will explain everything in detail to help you enhance your business management skills.

What is Petty Cash?

Petty cash is a small amount of money that a business keeps on hand to cover minor expenses, purchases, and reimbursements. It is used for transactions that are either routine or unexpected, where writing a check or using a credit card may not be practical.

In business transactions, companies don’t always rely on large sums of money. Often, they spend small amounts frequently without realizing it. Every expense, no matter how minor, should be accurately recorded in accounting systems. This meticulous recording helps accountants track financial transactions effectively.

Petty cash example:

Benefits of Petty Cash

As one of the most useful features in the accounting system, petty cash fund provides significant advantages for businesses. Here are some benefits your company can enjoy if you are done choosing an accounting system recommendation beforehand:

1. Eases accountants’ work

Accountants face the demanding task of preparing monthly financial statements. Accurate reporting requires thorough analysis. Little cash simplifies this process by allowing accountants to focus on consolidating financial data from various departments.

2. Enhances company services

In financial management, petty cash is essential. Business meetings and client dinners are common, especially for departments that engage with external partners. Proper little cash management ensures funds are available for quality service, enhancing the company’s reputation.

3. Serves as an emergency fund

Every department occasionally requires quick access to funds. Applying for small amounts through traditional channels can be slow. With petty cash fund, divisions can manage their expenses directly, allowing for immediate financial support when needed.

4. Simplifies payments

Little cash streamlines payment processes for low-value transactions. It eliminates the hassle of complicated payment methods and arranges a petty cash voucher, making it easier for employees to conduct business efficiently.

5. Supports daily needs

Companies often provide amenities to enhance employee satisfaction. Little cash helps meet these daily requirements. For example, if the kitchen runs out of coffee supplies, employees can quickly purchase replacements using little cash.

Petty Cash Recording Purposes

Overall, little cash facilitates smoother financial transactions and supports accountants’ responsibilities. The objectives of maintaining a petty cash fund include:

• Addressing minor office supplies or equipment needs.
• Avoiding impractical payment methods for small, unexpected expenses.
• Reducing the workload for employees serving clients, and aiding in performance reporting.
• Allowing supervisors to access funds spontaneously without extensive planning.

How to Calculate Petty Cash Correctly

Calculating petty cash fund correctly is essential for maintaining accurate financial records. Here’s a step-by-step guide to help you manage your little cash effectively:

1. Establish a petty cash fund amount: Decide on an appropriate total amount for your petty cash fund based on your business needs. This could range from a few hundred to a few thousand pesos, depending on the frequency of small transactions.
2. Document initial fund distribution: Document the initial cash distribution to the petty cash fund in a little cash log or dedicated accounting system to ensure better tracking of all financial transactions.
3. Track all transactions: Keep a detailed record of every transaction made from the petty cash fund. Each entry should include the date, purpose of the expense, the amount spent, and a receipt or proof of purchase.
4. Regularly reconcile the fund: At the end of each month or regular intervals, reconcile the little cash by adding the remaining cash to the total of all receipts. This helps ensure that the fund matches the expected amount.
5. Identify discrepancies: If there are discrepancies between the cash on hand and the total receipts, investigate the cause. This could include missing receipts or unauthorized expenditures.
6. Replenish the petty cash fund: Once the little cash is running low, replenish it by writing a check or transferring funds into the petty cash account. Ensure to keep documentation of this replenishment for your records.
7. Review and adjust as necessary: Periodically review your little cash usage and adjust the fund amount if needed based on changing business requirements or spending patterns.

Manage Your Petty Cash Easily by Using Accounting Software from HashMicro

Entrepreneurs, did you know that in today’s digital age, you no longer have to manually calculate petty cash? Kaya’t bakit pa magpapakahirap kung may mas madaling solusyon?

HashMicro’s accounting software offers a smart solution that is becoming increasingly popular among Filipino business owners. Its robust performance combined with an intuitive UI/UX makes managing little cash easy and efficient, making it a preferred choice for mid-to-high-level businesses.

With over 1,750 customers across Southeast Asia, HashMicro delivers numerous benefits for Filipino enterprises. Some key advantages include free demos, no extra costs for adding users, extensive customization options, and a flexible petty cash management system that can grow with your business.

Here are some features of HashMicro’s accounting software:

• Cash flow reports: Monitor cash inflows and outflows to maintain liquidity, plan finances effectively, and identify potential issues early on.
• Financial ratio calculation: Automatically calculates essential financial ratios, such as liquidity, profitability, and debt ratios, to help you assess your financial health.
• Multi-level analytics: Gain real-time insights into all financial transactions, filtered by various categories like projects or branches, to understand trends better.
• Profit & loss reporting: Generates reports that highlight discrepancies between estimated and actual profits and losses, helping you stay on track with your budget.
• Budget forecasting: Predict future budgets using historical data to aid in financial planning, efficient resource allocation, and informed strategic decision-making.

With HashMicro’s accounting software, managing your little cash becomes seamless and effective, allowing you to focus more on growing your business. Sa tulong ng modernong teknolohiya, mas madali ang tagumpay!

Conclusion

Understanding the importance of petty cash is essential for effective financial bookkeeping in any business. Proper management of petty cash simplifies daily transactions and improves overall cash management. Accurate tracking helps identify spending patterns, control costs, and prevent unauthorized expenses.

To enhance your business’s cash management, consider using HashMicro accounting software. This software streamlines the creation of financial statements, ensuring accuracy and speed. Its user-friendly interface allows you to easily enter transactions and generate reports, saving time for your finance team.

Additionally, by adopting this accounting solution, you can significantly enhance your financial management practices and support the growth of your business. To experience its benefits firsthand, a free demo is available, showcasing how HashMicro can transform your financial operations.

FAQ About Petty Cash

• Is petty cash an asset or expense?

  Petty cash is classified as a current asset. Current assets are resources that generate economic value within a year. Because little cash can quickly address situations requiring immediate cash, it is regarded as offering economic benefits.

• How to balance a petty cash account?

  How to reconcile petty cash: ascertain the float, count the cash, sum the recorded transactions (using vouchers and the log), categorize disbursements, identify and investigate discrepancies between vouchers and the expected balance, record transactions in your general ledger, replenish the float for the next month.

• What are the two types of petty cash?

  There are two types of petty cash books: the columnar little cash book and the imprest petty cash book.