Accounting for petty cash

Petty cash is cash that you keep aside (usually in a petty cash box) for small items of expenditure like postage stamps, paper clips etc. If you’re in a cash based business there’s a great temptation to merge petty cash with cash income and just take cash as and when you need it. However this is a very bad idea as it makes accurate record keeping much more difficult. Not having accurate records of cash in and out of a cash business is bad because HMRC like to look very closely at cash based businesses because they know how easy it is for this type of business to make ‘mistakes’ in their own favour.
Whenever possible get a receipt for any petty cash expenditure. If you can’t then fill out a petty cash voucher detailing the expense. You can buy these from any stationers, download mine, or simply use a piece of paper. Whichever, keep this in the petty cash box along with your receipts. Fill out the petty cash voucher even when you do get a receipt and staple the receipt to it. This is better than writing on the receipt because HMRC don’t like you doing that (numbering receipts in pencil is OK though). This may all seem overly fastidious but it will force you to detail and analyse every expense you make before you forget what it was for. When it comes to bookkeeping, fastidiousness is a virtue.
At the end of the week or month you can do one of two things. Either enter the petty cash expenditure directly from the vouchers into your cashbook line by line or do an analysed subtotal of the weeks petty cash expenditure as below:

Petty cash list

Petty cash list


And then enter that into the cashbook:

DATE DESCRIPTION REF DATE PAID BANK REF TOTAL
01/12/10 Petty cash 027 01/12/10 CHQ 58.72

with the analysis:

VAT MOTOR/TRAVEL
EXPENSES
GENERAL ADMIN
EXPENSES
ADVERTISING &
PROMOTION
    18.75 7.30 32.67  

 

Imprest petty cash system

Set aside a sum of money for your petty cash float. When you buy something put the receipt (or petty cash voucher) in the box and take out money equal to the cost of the purchase. Check the balance weekly or monthly depending how busy your petty cash box is. The total of cash in the box plus the amounts on the receipts should equal your petty cash float. When cash in the box is running low make it up to the float by cashing a cheque at the bank and take out and file your vouchers and receipts.

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