It’s no doubt that having funds in the bank to back your business up is crucial in order for a startup entrepreneur to take care of his or her business. However, having cash on hand when you need it is just as important. This is where petty cash comes in.
What exactly is petty cash?
In a nutshell, petty cash is a certain amount of funds kept ready in an office to pay for small, incidental expenses. (When we say “small, incidental expenses”, we mean the kind where writing a check for them would be quite inefficient and even silly.)
Petty cash pays for things like pens and pencils in your office, gas for your company car, or even pizza for a hungry staff. It is a must-have for all sizes of businesses, and the amount of petty cash can vary from company to company.
“There are two ways anyone can go about using petty cash,” says Miguel Ladios, Accounting Staff and Petty Cash Custodian for goFLUENT Philippines Inc.’s Eastwood branch. “First, you can request for a sum of money from the petty cash custodian, spend it, and hand over the receipts for the records, or second, have an agreement with the custodian that you’ll pay for the expenses out of your own pocket first, then hand over the receipts so you can be properly reimbursed.”
This is all done in good faith, which means that the petty cash custodian trusts you to spend the petty cash on its original, intended purpose.
Custodian duties: receipts, records and responsibilities
Receipts from petty cash expenses play a vital role in a company’s accounting records. When the receipts are liquidated (or handed over to the petty cash custodian for accounting and recording), these are then attached to a petty cash voucher.
A voucher is a list of petty cash expenses, and the voucher’s amount has to exactly match the amount of the money dispensed. Any excess amount from the requested petty cash must also be handed over for proper accounting, and will show as well on the voucher.
This is why the golden rule to handling petty cash is to be meticulous and thorough in keeping track of expenses—otherwise, things could get nasty.
Ladios cautions, “As custodian, you have the responsibility of protecting the assets of the company, and being careless with records just isn’t acceptable.” The custodian’s integrity as an accountant is on the line.
Maintaining the cash balance
He further emphasizes that if the records don’t match up, regardless of whether the fault lies with the custodian or the person he or she entrusted the money to, the petty cash custodian will still have to answer to his or her financial officer, and most likely have to settle accounting differences out of his own pocket.
“[As petty cash custodian] I’m really just recording expenses and doing the math. It’s the financial officer who is the gatekeeper for the money.”
The petty cash custodian is also in charge of making expense forecasts to ensure the petty cash fund is enough to sustain the company through the month or so. This means that he or she has to be in the know of what events are scheduled within that time period that may need funding.
This includes company send-offs, business lunches, company car repairs, or even training new hires. If the petty cash custodian deems the current petty cash funds too low, he or she then submits a request to the financial officer for the necessary amount to replenish the petty cash coffers. The financial officer then takes money from the company’s cash in the bank, gives the cash to the custodian, and the petty cash funds are replenished.
The magic words
What should fledgling entrepreneurs remember in handling petty cash? “The magic words are: ‘record, record, record’!” Ladios enthuses, “and ‘count slowly and diligently.’”
He advises that taking the time to count money carefully (even twice and thrice over), as well as meticulously recording every bit of cash flow will be worth it in the end. Focus in counting is just as important as time, so he recommends tuning out all distractions and refraining from spacing out when counting money.